AGRICULTURE, RURAL DEVELOPMENT, FOOD

AND DRUG ADMINISTRATION, AND RELATED

AGENCIES APPROPRIATIONS FOR 2015

HEARINGS
BEFORE A

SUBCOMMITTEE OF THE

COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND
DRUG ADMINISTRATION, AND RELATED AGENCIES
ROBERT B. ADERHOLT, Alabama, Chairman
TOM LATHAM, Iowa
ALAN NUNNELEE, Mississippi
KEVIN YODER, Kansas
JEFF FORTENBERRY, Nebraska
THOMAS J. ROONEY, Florida
DAVID G. VALADAO, California

SAM FARR, California

ROSA L. DELAURO, Connecticut
SANFORD D. BISHOP, JR., Georgia
CHELLIE PINGREE, Maine

NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full Committee, and Mrs. Lowey, as Ranking
Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees.

TOM OBRIEN, BETSY BINA, PAM MILLER,

and ANDREW COOPER,
Staff Assistants

PART 3
USDA Inspector General ........................................................
Commodity Futures Trading Commission ........................
USDA Research, Education, and Economics ....................

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COMMITTEE ON APPROPRIATIONS
HAROLD ROGERS, Kentucky, Chairman
FRANK R. WOLF, Virginia
JACK KINGSTON, Georgia
RODNEY P. FRELINGHUYSEN, New Jersey
TOM LATHAM, Iowa
ROBERT B. ADERHOLT, Alabama
KAY GRANGER, Texas
MICHAEL K. SIMPSON, Idaho
JOHN ABNEY CULBERSON, Texas
ANDER CRENSHAW, Florida
JOHN R. CARTER, Texas
KEN CALVERT, California
TOM COLE, Oklahoma
MARIO DIAZ-BALART, Florida
CHARLES W. DENT, Pennsylvania
TOM GRAVES, Georgia
KEVIN YODER, Kansas
STEVE WOMACK, Arkansas
ALAN NUNNELEE, Mississippi
JEFF FORTENBERRY, Nebraska
THOMAS J. ROONEY, Florida
CHARLES J. FLEISCHMANN, Tennessee
JAIME HERRERA BEUTLER, Washington
DAVID P. JOYCE, Ohio
DAVID G. VALADAO, California
ANDY HARRIS, Maryland
MARTHA ROBY, Alabama
MARK E. AMODEI, Nevada
CHRIS STEWART, Utah

NITA M. LOWEY, New York

MARCY KAPTUR, Ohio
PETER J. VISCLOSKY, Indiana
E. SERRANO, New York
JOSE
ROSA L. DELAURO, Connecticut
JAMES P. MORAN, Virginia
ED PASTOR, Arizona
DAVID E. PRICE, North Carolina
LUCILLE ROYBAL-ALLARD, California
SAM FARR, California
CHAKA FATTAH, Pennsylvania
SANFORD D. BISHOP, JR., Georgia
BARBARA LEE, California
ADAM B. SCHIFF, California
MICHAEL M. HONDA, California
BETTY MCCOLLUM, Minnesota
TIM RYAN, Ohio
DEBBIE WASSERMAN SCHULTZ, Florida
HENRY CUELLAR, Texas
CHELLIE PINGREE, Maine
MIKE QUIGLEY, Illinois
WILLIAM L. OWENS, New York

WILLIAM E. SMITH, Clerk and Staff Director

(II)

AGRICULTURE, RURAL DEVELOPMENT, FOOD

AND DRUG ADMINISTRATION, AND RELATED AGENCIES APPROPRIATIONS FOR
2015
WEDNESDAY, MARCH 5, 2014.
U.S. DEPARTMENT OF AGRICULTURE
WITNESSES
HON. PHYLLIS FONG, INSPECTOR GENERAL, U.S. DEPARTMENT OF AGRICULTURE
KAREN ELLIS, ASSISTANT INSPECTOR GENERAL FOR INVESTIGATIONS, U.S. DEPARTMENT OF AGRICULTURE
GIL HARDEN, ASSISTANT INSPECTOR GENERAL FOR AUDIT, U.S. DEPARTMENT OF AGRICULTURE

INTRODUCTION

OF

WITNESSES

Mr. ADERHOLT. Okay. The subcommittee will come to order. Good

morning, everybody. Welcome to the Agriculture Appropriations
Subcommittees first hearing for fiscal year 2015. I would like to
approach our fiscal year 2015 bills with basically three things in
mind: number one, ensuring the proper use of funds for robust
oversight; second, ensuring the appropriate level of regulation to
protect producers and the public; and ensuring funding is targeted
to vital programs.
The audits and investigations conducted by the Office of the Inspector General are key to the subcommittees effort to ensure the
proper use of funds, to detect and reduce waste, fraud, and abuse,
and to strengthen the management of USDAs agency and programs. The work is vital to us to make sure that the decisions on
how to allocate the funds and our oversight work to ensure that the
funding that we provide is utilized in a proper way.
This morning I am pleased to welcome USDA Inspector General
Phyllis Fong, Assistant Inspector General for Investigations, Karen
Ellis, and Assistant Inspector General for Audits, Gil Harden, to
the hearing this morning. So welcome and thank each of you for
being here.
Ms. Fong, I would like to first of all congratulate you on receiving the Distinguished Federal Leadership award from the Association of Government Accountants last month. For those of you who
may not know, this recognizes Federal officials who exemplify and
promote excellence in enhancing sound financial management legislation, regulations, practices, policies and systems. So we are for(1)

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tunate to have you at USDA, Ms. Fong, and thank you for your
service.
Before I begin the hearing, I do want to recognize our ranking
member, Mr. Farr from California, for any opening comments that
he might like to make.
Mr. FARR. Thank you very much, Mr. Chairman, and I apologize
for being late. I appreciate you getting the hearing started. This is
the first hearing of the year and we start with the inspector general. I have to tell you I have mixed emotions about inspector generals. I think that where you can be very constructive in improving
government is great, but I have also seen a lot of unintended consequences from IG reports that have led to things getting a lot
worse. Before I got into elected politics, I worked in the auditors
in the legislative analysts office in Sacramento under a really famous fellow who started the first state legislative analysts office,
Alan Post, and I found that oftentimes when we were analyzing the
programs for the legislature, what we learned was that the programsI mean, the legislature just didnt write good law and
thereand got a lot of unintended consequences. And what I would
like toI appreciate that you are also a member of the Federal Inspectors Generals Federal, what do you call it, the governmentwide program where you73 Federal inspectors. I justwhen I get
to questioning, I want to just discuss some of the issues of how you
fix things that are broken, but I appreciate whatI echo the appreciation for the award you received. We love public servants that are
recognized by their peers as outstanding, and you are certainly one
of them, and thank you for being here today.
Mr. ADERHOLT. Thank you. As this is our first meeting, let me
just go over a little few things about how the procedures for the
hearings are to our members. And we will work under, as we always and have in the past, the 5-minute rule. Members will be recognized for 5 minutes in order of seniority at the dais at the beginning of the hearing and then in order of appearance. We will alternate between the majority and the minority members. And we may
have a couple rounds to allow members to get their question in.
So I would like to ask anybody with electronic devices, if you can
turn them off or put them on silent, that would be helpful.
Inspector General Fong, I will note that your written testimony
will be included in the record, and I would like to recognize you
now for your oral statement and then we will proceed with the
questions.
OPENING STATEMENT
Ms. FONG. Thank you, Mr. Chairman, Ranking Member Farr and
members of the subcommittee. I appreciate the very warm welcome
that you are extending to our office today, and as always, we appreciate the interest that you show in our work and what we do
at USDA.
As you know, our mission is to help USDA deliver its programs
effectively and with integrity, and we provide audit and investigative services. Since you have my full written statement, let me just
highlight some of the significant work we did over the last year as
well as some of the work that we have in process that may be of
interest.

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In the area of food safety, we recently reported on swine slaughter plants, and we found that a number of plants repeatedly violated food safety regulations with little or no consequence. We also
issued a report on the need for FSIS to test boxed beef for E. coli.
That report came out a number of months ago, but we believe it
is very significant.
We are currently conducting audits of FSISs public health information system for the domestic inspection module, and we are also
doing an inspection of ground turkey processing.
OIG focuses also on helping USDA safeguard and effectively deliver its programs. Given the importance of the SNAP program, it
had an $86 billion budget last year, which represents 56 percent
of USDAs portfolio, we in OIG devoted more than half of our investigative resources to addressing trafficking in SNAP benefits, and
this resulted in almost 400 convictions and over $49 million in fiscal year 2013. We also spent a number of resources on our audit
side to issue recommendations to the Department to better screen
SNAP retailers who wish to enter the program and remain in the
program.
This year, we have kicked off an initiative with FNS to work collaboratively to address SNAP fraud on a multi-agency level that
will involve our State and local partners as well, and we have great
expectations that this program will be proactive.
Other work that we have in process focuses on how FNS reports
its SNAP payment error rates, and we are also looking at factors
that are causing high average food costs in the WIC program.
Finally, as you all know, we work to help USDA improve its
overall management systems. This year we issued reports on the
Departments settlement of the civil rights complaints as a followon to the Pigford litigation. We also issued reports on IT security,
financial statements and improper payments. We have ongoing
work on the claims review process for women and Hispanic farmers
and we also are looking at the use of Economy Act transfers and
reimbursable agreements by the Department as it manages its
funds.
Let me just briefly conclude my oral statement by addressing the
fiscal year 2015 request for the OIG. As you all know, in response
to government-wide budget constraints, we have had to streamline
our operations, as has every other Federal agency, and we are presently operating at our lowest level of staffing. We want to thank
you at the subcommittee for providing us with a much needed increase in fiscal year 2014. This will enable us to provide more effective oversight of USDA programs while we continue to look for cost
saving opportunities within our operation.
For fiscal year 2015, the Presidents request provides a modest
increase for us to adopt an innovative approach to addressing improper payments in USDA programs, and we hope that you are
able to support that request. We are hoping to use data analytics
to really focus on the level of improper payments across USDA,
starting with the issues that we see in RMA and some of the other
agencies.

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So thank you today for inviting me to testify before the subcommittee, and we are pleased to answer any questions that you
might have.
[The information follows:]

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DEPARTMENTAL CHALLENGES

Mr. ADERHOLT. Thank you, Inspector. First of all, I would like to

start out with something that I believe I had mentioned last year
when we started out the subcommittee hearings, and that was
talking about the challenges and the successes. You have mentioned some of those in your opening statement, but I think last
year I asked about the USDAs greatest challenges and whether
the Department is doing enough to address those challenges. And
can you tell a little bit about what you see from your perspective
and from your office, what is the greatest challenges as you look
to the year ahead?
Ms. FONG. Well, that is a very good question, and it gives us a
chance to look at the body of our work and see the major themes
coming out.
As we were preparing for this hearing, we were talking, and one
of the things that we see across the Department is that there is
a need to provide more attention to effective management of the
Departments programs and oversight of programs both within the
agencies and with respect to third-party providers of benefits. We
have done a number of reports in the agencies. I think if you look
at our IT security reports, that is an indication of some of the problems that we are seeing with agencies who need to really focus on
their IT security. Improper payments becomes a symptom of perhaps the need for more effective oversight of how agencies deliver
programs. And what we were seeing is that in this era of budget
constraints, program managers are looking as a top priority to deliver programs, to get the money out, to get the benefits out to recipients and participants, and we believe that that is a very important goal.
When an agency has perhaps less resources than it has had in
the past, sometimes agencies have to make some tough choices
about delivering benefits versus making sure that there are enough
controls in place, that there is enough oversight of how those benefits are delivered, and we believe that there needs to be a little
more attention on the oversight side of that. We see that in the
SNAP program, in the nutrition programs, in the crop insurance
programs, in the farm programs. And as our statement points out,
we are doing continued work on those oversight efforts by the agencies to see how effectively those programs are working.
Mr. ADERHOLT. Where is USDAin what areas are they doing
a good job in tackling the waste, fraud, and abuse?
Ms. FONG. Well, we are very encouraged by the partnership that
we have with FNS. We recognize that the SNAP program poses a
number of challenges for everyone at the Federal, State and local
levels in terms of delivery, but FNS has been very willing and enthusiastic in terms of working with us to roll out our initiative this
year. And let me just talk a little bit about that. We are partnering
with them to work with State and local administrative agencies as
well as law enforcement to really get at some of the root causes for
vulnerabilities and fraud in the program, and to ensure that fraud
where we find it is being addressed both at the retailer as well as
the local recipient level, and to also proactively get the message out
to people around the country that if they engage in fraudulent ac-

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tivities, that there will be some consequences to that. So we are
rolling that initiative out as we speak, and FNS has been a very,
very active partner.
PROGRAM OVERSIGHT

Mr. ADERHOLT. You mentioned about the oversight of programs

and how important that is. I assume that is going to be one of your
top recommendations for USDA. What are some other recommendations that would be near the top there that would fall in
that same category?
Ms. FONG. We feel very strongly that the Department needs to
focus on its IT security initiatives. I think there is a recognition at
the Department that this is a significant issue. The use of IT cuts
across all program areas. As we are becoming more computerized,
it is essential that we have good databases and security of data.
I think there is a good recognition of the problem. The solutions are
taking time, and they will continue to require time and attention.
Mr. ADERHOLT. Okay. Thank you. Mr. Farr.
Mr. FARR. Thank you very much, Mr. Chairman.
IG WORK PROCESS

I would like to pursue a little bit of just the process in which the
IGs work, because you are on the council ofyou are chair, arent
you, of the Council on Integrity and Efficiency? Congratulations.
That isyou are in charge of what, 73 other inspector generals?
Lets take the SNAP question that the chairman asked. I mean,
that seems to me, and just quickly thinking, that there is probably
no program in the Federal Government that has more responsibilities to audit the recipient of the money, of the benefit, and then
how that benefit is spent. In most cases, it is just does the money
get to the right place, not how is the money from the person spent.
Nobody checks how Social Security money is spent, but they do
check on how SNAP programs are spent.
So as you review these, and obviously, as you said, it is a huge
program. It is, what, 56 percent of the entire Department of Agricultures budget spent on food in America? Do you also come in
with recommendations on how to improve the program or just that
it isntbecause I have found in a lot of these programs, like the
school feeding program that I am really interested in, we had seven
or eight different programs within schools. Nobodys come in and
said why dont we put those under one title and manage them
under one silo rather than seven separate silos, and whatever technology, because you are also reviewing use of technology, appropriate technology, sort of bar coding of the meals or bar coding the
process.
I mean, there is justdo those recommendations, do the IGs
come in and say there is a better way of managing this law that
we are required to have you comply with?
Ms. FONG. You have raised a number of very interesting
thoughts in your question. Let me just comment on a number of
them. You mentioned the Council of the Inspectors General on Integrity and Efficiency. It is composed of the 73 Federal IGs. And
our task, our mission is to identify issues that cut across multiple

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agencies and then to do cross-cutting work and come up with recommendations where appropriate. As you mentioned
Mr. FARR. Is thatexcuse me. Is that also program change or
just how the IGs can better function?
Ms. FONG. It is both. We do focus on how IGs can better function. We also look at program change. For example, we have issued
reports in the last few years on suspension and debarment government-wide, on IT cyber security and how to better evaluate that,
and we have done something on export and import trade. And one
of the projects we are working on now deals with cloud security,
the security of the agencies using cloud computing to manage a lot
of their IT practices.
As you can imagine, it is not always easy to find topics that cut
across department and agency lines. For example, you know, you
mentioned that on the Social Security side that perhaps people do
not look at how Social Security recipients spend their money. I
would say
Mr. FARR. Well, there is no lawthere is no law into that of how
you spend it, where there is with SNAP, you are limited as to how
you can spend the money.
Ms. FONG [continuing]. And along those lines
Mr. FARR [continuing]. The benefit.
Ms. FONG. At the IG level, at the IG council level governmentwide, what we would focus on in dealing with the IGs from, say,
the Social Security Administration or, say, the Department of
Health and Human Services with respect to Medicaid, or Veterans
Affairs with respect to veterans benefits, is to find issues that we
have in common, for example, the need to match databases, not to
pay people who are on the death master list or who may be ineligible for other reasons, and we have been able to do work at that
kind of macro level.
Mr. FARR. Does that come back toI mean, here all of us are
elected to fix things that are broken in government, and some of
us think sometimes that it is broken on the collection side and
some of us think it is broken on the expenditure side. I mean, that
is the politics. But it seems to me that you arethe thing I see in
Congress different from when I was in local and State government
is that we do everything on a very general level. We make law very
general and then we have these rule writings that gets into writing
the detail, but the only people that really examine and know how
it really ends up on the street are people like inspector generals
and/or managers of those programs, and very rarely do we get back
sort of the feedback, you designed this thing poorly. It is justit
is not going to work the way you have written it. There is a smarter, better way. That is whatthe kind of feedback, you know, and
nobody knows that except the technicians on the inside. I always
tell everybody who is a public employee, tell us what is broken. If
you are running a program and you have to do a bunch of dumbdumb stuff, we want to know dumb-dumb, because we can fix
dumb-dumb, but we dont get it. I mean, we dont always get it unless there is sort of a scandal or something like that.
And I just wondered if part of your responsibilities was to come
back and say, you know what, either the law or the regs are just
poorly written.

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Ms. FONG. And that is a very good point. We do try to point that
out in our reports where we think that a regulation or a law should
be looked at and perhaps revised. The one that comes to mind immediately is our recent report on SNAP retailers and how the Department authorizes and reauthorizes retailers who participate.
There are a number of recommendations we made in there that
may require a change to law or regulation if the Department decides it wants to pursue that, and so I would draw your staffs attention to some of those recommendations.
Mr. FARR. Thank you.
Mr. ADERHOLT. Mr. Latham.
Mr. LATHAM. Thank you, Mr. Chairman.
NASS DATA

And welcome; appreciate your work. Your testimony reported a

lack of antiquated enforcement procedures and security measures
meant to protect the National Agricultural Statistic Service information and understanding how important security is on that information, the effects it can have on markets and insider trading,
whatever thatit is a little concerning to me to hear that there are
real problems.
Was there any data that was actually released prior to what it
should have been, or do you know if information did get out ahead
ofto affect the market?
Mr. HARDEN. Yes, sir. We would probably have to get back with
you on details, but before we did our review, I think a couple years
prior, there was some information that was released a couple minutes ahead of time, but the impact on that, I dont know the exact
impact that it had on the market.
[The information follows:]

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Mr. LATHAM. Okay. Are you confident now that the information
is secure, that the datas not
Mr. HARDEN. I know that as we did the review and we brought
the problems to NASS, they were very receptive and started working on fixing the problems before the field work was even finished.
So in terms of the recognition of the problem, I think they have a
better handle on it now. We would have to go back and look at it
in the future to see if the fix is sufficiently implemented.
Mr. LATHAM. Do you have any additional recommendations or
any other concerns orother than what you have already
Mr. HARDEN. No.
RECOVERY RECOMMENDATIONS

Mr. LATHAM. Okay. There wereI think in your testimony, you

did 17 audits, and as a result, determined there was $424 million
of questioned or unsupported costs at USDA, and there was $12
million that was recommended for recovery and $412 not. Why
would you not want to recover more than $12 million rather than
the $412?
Ms. FONG. Let me just talk generally in terms of our recommendations. Weas you point out, we make dollar recommendations in a number of categories, and that cost avoidance category
generally applies when we are making recommendations to the
agency to take action before the money goes out. Dont let the
money go out to an ineligible person. The recovery category is when
the money has already gone out and we tell the agency, take a look
at this, we think it may have gone, and they may be using it for
an ineligible purpose or an improper purpose. We will make those
recommendations.
At that point, the agency then has to assess whether they can
take action, whether it is within the statute of limitations, whether
they have a likelihood of recovery, whether there is any other factor that comes into play there. And so we work with the agency to
come up with recommendations that are possible and
implementable.
Gil, did you want to add
Mr. HARDEN. And just to point out, a big part of the number that
was not recommended for recovery, I think if I go back and look
at the details, they are going to be connected with statistical projections. So on thewe take a sample and we do it statistically. If
there are individual members of that sample where we note that
they were potentially ineligible, we can make specific recommendations to the agency to go look at those specific sample items, but
then with our statistician, we can take that data and apply it to
the universe that we were looking at at that point in time, which
comes up with an amount that is potentially ineligible, but it is
something that is not recoverable because it is not connected with
a specific sample item.
Mr. LATHAM. So these numbers are actually projections of
maybe?
Mr. HARDEN. Statistically, yes, those.
Mr. LATHAM. Okay. Again, define your question, unsupported
costs. What does that mean?

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Mr. HARDEN. The unsupported costs category is where they did
not have the documentary support for whatever
Mr. LATHAM. Okay.
Mr. HARDEN [continuing]. The decision was that was made, and
they couldnt provide it to us during field work or maybe they were
able to provide it to us after, they were able to come up with it,
or if not, then it stays as unsupported. It is part of the question
cost category.
Ms. FONG. For example, if the Department were to give a grant
to a recipient to carry out a certain kind of activity, and the recipient then claimed costs under the grant, say, for salaries or for purchase of equipment or whatever it is, if they dont have the supporting receipts or documentation, then the Department should not
be paying that. The claimed costs need to be supported and justified.
Mr. LATHAM. Okay. I am out of time. Thank you.
Mr. ADERHOLT. Ms. Pingree.
Ms. PINGREE. Thank you very much, Mr. Chair.
Thank you for your testimony and all of the work you do on behalf of the USDA and investigating things that really need to be
understood.
INVESTIGATION PRIORITIES

Let me just start with some of the questions around how you decide where to focus your investigations. You did a great job in the
beginning, I think, explaining that because SNAP is such a large
percentage of the budget at USDA, it has been a focus, and you
have certainly done a lot of work of trying to sort out what the
areas are of fraud. It is always a volatile topic here when it comes
to the policy and the funding. And I appreciate the fact that you
have really started to look at some of the retailing issues as opposed to just focusing on individuals, because I think all too often
we think about the individual who committed the fraud.
So I want to just get a little bit of a comparison. I see from 2012
data, about 50 percent of your investigations went into SNAP
fraud. My understanding is about 99 percent of the people eligible
for SNAP are completely truly eligible, so clearly, some of this is
happening in the retailing side. Payment accuracy is 96.2 percent
from 2011 data.
In Maine, where I represent, the average SNAP benefit is about
$122 a month, so individuals who do something incorrect arent
necessarily defrauding the government for high numbers.
I, of course, want to compare this a little bit to some of the farmers who receive different kinds of payments through USDA. And
the average of the top 10 percent of farmers is $32,000 a year in
crop subsidies. So just give me a sense on how much you have done
on that side, given the dollar value, how able we are to understand
when people are receiving those subsidies appropriately, and how
you balance out the use of those resources, and I would say particularly in light of the fact that with this passage of the farm bill,
there are going to be a tremendous number of changes in how
farmers receive subsidies, so it seems to me it will be an area of
a certain amount of confusion in the beginning.

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Ms. FONG. Let me just comment generally about how we set our
priorities for our work. As you mentioned, on our investigative side,
which makes up about 40 percent of the resources of our office,
SNAP has taken up more than half of our attention. And we generally focus on the retailers, because that is the Federal level of responsibility, leaving the recipient fraud generally to the State and
locals to investigate.
Now, both our audit side of the house and our investigative side
of the house, every year we look at the areas of highest risk within
USDA as we plan our work. And in order to kind of assess that,
we ask for input from Congress, from the Secretary as to areas
where you all might believe we could focus our attention. We also
look at the history of the various programs in the portfolios based
on our experience, the level of funding, whether there are new legislative initiatives that are being implemented, and any other factor that could come into play. We then decide what areas pose the
greatest risk at the current time, and are ripe for a look. Many
times we will not look at a very new program, because we want to
give the agency a chance to start implementing it.
I think if you look at our full portfolio, you will see that every
year we are mandated by law to carry out financial statement audits, which we do of the whole Department. We have to look at IT
security. We have to look at improper payments by law, and so we
spend quite a bit of resources on that. We have also spent a lot of
time on the conservation programs because of the way those programs have been managed in the past. Crop insurance is a matter
of great interest to us, as is any food safety issue. That tends to
be one of our top priorities.
IMPROPER PAYMENTS

Ms. PINGREE. So perhaps I could have the opportunity to do a little more research on this or you could provide me with that, but
I am curious, given some of the priorities around improper payments and what would be quite a bit of changes in crop insurance.
So, again, I am somewhat interested in how many improper payments or how that is evaluated when it comes to subsidies to farmers. And you may not have all that information today, but I would
be just generally interested in understanding better how well we
are able to investigate that and how much of your resources go to
that investigation.
And just as a little follow-up on that, so I know that part of the
new resources that are in the Presidents budget are on the creation of these audit centers of excellence, which seems like a potentially good way of going about doing that, so again, in the future,
do you have an understanding of how much of that will be devoted
to investigating SNAP fraud as opposed to investigating subsidy
payments?
Ms. FONG. We would be happy to provide some additional detail
for the record.
Ms. PINGREE. I am out of time, so I know you probably dont
have a lengthy answer, but I would be happy to get more information on that.

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Ms. FONG. We would be happy to provide that.
Ms. PINGREE. Great. Thanks.
[The information follows:]

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Mr. ADERHOLT. Mr. Nunnelee.
Mr. NUNNELEE. Thank you, Mr. Chairman.
IPERA

Ms. Fong, you state in your report that the USDA has not complied with the Improper Payments Elimination Recovery Act of
2010. What areas is the USDA lacking full compliance with
IPERA?
Ms. FONG. Well, there are seven areas that we are supposed to
assess, and they are non-compliant with three of them. They have
not
Gil, go ahead to make sure we get it right.
Mr. HARDEN. The three areas that they were not compliantwe
found issues with eight of the 16 high-risk programs.
Mr. NUNNELEE. Eight of the 16 what?
Mr. HARDEN. High-risk programs that are covered as part of
IPERA. So for two programs, they have not published improper
payment estimates; for two programs they havent published improper payment rates of less than 10 percent; and then in six programs, they havent met their annual reduction targets.
Mr. NUNNELEE. So what are they doing to correct these areas?
Mr. HARDEN. Bythis was the second year in a row that we
hadwe had reported the non-compliance, and so we are doing the
current work right now, but they had to get with OMB and do
some extra work this year because they have not shown compliance, but I will have to get back to you on exactly what they have
done.
Mr. NUNNELEE. All right. So youyou know, we will submit that
for the record.
[The information follows:]

27

28
Mr. NUNNELEE. All right. Last year you testified that there were
10 States that have not met deadlines for recommendations that
you had recommended for the State compliance. Where are we with
those?
STATE SNAP COMPLIANCE

Mr. HARDEN. Those are with the SNAP

Mr. NUNNELEE. Yes.
Mr. HARDEN [continuing]. Databases?
Mr. ADERHOLT. Speak a little closer to the mike.
Mr. HARDEN. Those were with the SNAP
Mr. NUNNELEE. Yes.
Mr. HARDEN [continuing]. Databases? And we have gotten agreement with FNS on all of those recommendations in terms of the
plan forward in terms of making corrections. We had initiated work
to do some follow-up work in that area, but when we started that
work earlier this year, we learned that FNS had let its own contract to look at some of the very same things that we were going
to look at where they were working with States to improve the
methods for tracking down, you know, the improper payments. So
what we are doing with that right now is monitoring how they are
doing to see whether we need to go in the future, as opposed to duplicating the effort that they are doing right now.
Mr. NUNNELEE. So is it reasonable to think that when we come
back this time next year, you will be able to report that they have
made significant progress?
Mr. HARDEN. I will look into that and see if we can say that. I
know that we canone of the things that we are working on right
now is their quality control rate, and we are continuingwe are
starting to see problems with that error rate as well, as well as errors with the school lunch and breakfast. So it is a big, big problem, and they are making incremental changes.
Mr. NUNNELEE. Thank you. Thank you, Mr. Chair.
Mr. ADERHOLT. Mr. Fortenberry.
Mr. FORTENBERRY. Thank you, Mr. Chairman. Good morning.
Ms. Fong, first let me thank you, congratulate you on the major
award you received. And several years ago when I was chairman
of the Subcommittee on Nutrition on the House Agricultural Committee, we had a robust dialogue about fraud and waste in the
SNAP program. You took some additional initiative there and dug
a little deeper, and I think we have got some good outcomes, so
thank you for that initiative.
I think it is important to say up front that this is America. We
dont let people bleed in the street, we dont let people starve in
their homes, and that is why programs such as SNAP are important. Given the magnitude of it, given the amount of money that
it spends, even a small bit of fraud in it creates the potential for
savings, which, in turn, are necessary in this tight fiscal time, but
also it is not fair to those who are in vulnerable circumstances to
have dollars that could be used to help them divided to people who
are abusing the system. So thisin that spirit is why we tend to
focus pretty narrowly pretty quickly on the SNAP program.

29
SNAP FRAUD

Back to that point, where do you finddo you find fraud in the
program concentrated in one area of the country or another?
Ms. FONG. I dont think we would say it is concentrated in particular areas, because we dontyou know, it is hard to project
that. We do have major investigations going on all the time around
the country in all of the major urban centers that you can imagine.
The initiative that we are working on with FNS has identified a
couple of areas that we are going to focus on, because the State and
local authorities there are happy to work with us and because we
see opportunity there. And I
Mr. FORTENBERRY. That is on the retailer side?
Ms. FONG. Retailer as well as recipient. It will
Mr. FORTENBERRY. Let me ask you a question simply. How does
the most basic type of fraud take place? In other words, if you are
a SNAP recipient, somebody offers you some cash for the use of the
card, is that the fundamental way in which SNAP recipients could
potentially abuse the program, and the same thing for the retailer?
Ms. FONG. That is basically the scheme. There are many variations on it, but the idea is that if you are a recipient, you offer
your card up. You get perhaps $0.50 on the dollar for that, so you
are free to spend that money any way you see fit, and then the retailer can redeem that card and get full value for it.
Mr. FORTENBERRY. And I recognize that this fraud in the program has dropped significantly since going to the electronic benefit,
but this basic problem still potentially exists and is dependent
upon the goodwill, the self-enforcement of the person using it primarily. I imagine that is very difficult to stop.
AUDIT PRIORITIES

You walked through this a little bit, but I wanted to get a better
understanding of how you prioritize your work, how you prioritize
your audits. Is it simply based upon the magnitude of the programs, where the moneys spent, so you tend to divide up what you
have in terms of resources and focus on those areas, or when something arises that looks problematic and you are alerted to it, you
tend to prioritize that?
Ms. FONG. It is all of those factors.
Mr. FORTENBERRY. Okay. And who makes that decision?
Ms. FONG. We do, the senior staff within IG.
Mr. FORTENBERRY. I assume youd want suggestions.
Ms. FONG. Absolutely. We welcome suggestions from all Members
of Congress.
Mr. FORTENBERRY. Well, two points. You have asked for a budgetary increase. I think it would be helpful to do some type of study
to show that if you arethe correlation between budgetary increases and better outcomes for programs measured in terms of impact as well as cost savings. That way, it helps very much justify
the case for an increase in your part.
PAYMENT LIMITATIONS

The second issue before I am out of time is Ms. Pingree had a

very good point. We are interested in stopping fraud, making the

30
system more effective no matter where it is, and in this regard, I
am interested in the question of exotic legal arrangements that
help skirt payment limitations and actively engaged rules, if you
will, for the appropriation of farm payments. This is an area that
I think we need to take a closer look at.
Ms. FONG. Yes, I appreciate that. We do have information on our
return on investment. Over the last 8 years, we have averaged $12
for every dollar invested in our operation, and so we strongly believe that any increase in budget for us will result in better and
more audits and investigations that bring back more money to the
government.
And in terms of payment limitations and actively engaged issues,
we are very aware of those. We have a long history of carrying out
investigations into schemes involving that as well as some audit
work in that area. So we will take your suggestion and explore that
for next year.
Mr. FORTENBERRY. Thank you. Thank you, Mr. Chair.
Mr. ADERHOLT. Mr. Rooney.
Mr. ROONEY. Thank you, Mr. Chairman.
NASS

Last month your office released an audit of the USDAs National

Agricultural Statistical Service, or NASS. Your security review
found that the agency failed to adequately enforce critical security
procedures and physical security measures intended to protect
NASSs information. You also identified several instances where
sensitive commodity market data was compromised due to lapses
in technology.
Has your office decided to conduct additional audits related to
the security of NASS in the programs?
Mr. HARDEN. Not at thisnot at this time, because they have
been very receptive and proactive in working on the recommendations and the problems that we noted, and so we would probably
include it asin future planning to go back and see if the measures they took, you know, solved the problems.
Mr. ROONEY. What would you be looking for to see if they did
solve those problems?
Mr. HARDEN. I mean, we would follow up on the recommendations that we just made. We would give them time to implement
those recommendations and then see if they implemented them.
Mr. ROONEY. Okay. NASS collects personally identifiable information data for a number of surveys, including the agricultural
census, so based on the findings in your recent security review, do
you believe we should be concerned about the USDAs ability to
sufficiently protect this sensitive data as well?
Mr. HARDEN. That was not something that was specifically part
of it. If I can get back to you on that, I would appreciate it.
[The information follows:]
Based on our audit work, we have concerns about NASS ability to sufficiently
protect all of its sensitive data, including data containing PII. We conducted vulnerability scans of NASS entire network on which this information resides and identified multiple critical and high IT vulnerabilities. NASS had not been timely addressing these vulnerabilities. As a result of our review, NASS created a group that
has started taking action to remediate these vulnerabilities.

31
Mr. ROONEY. Okay. Thank you. And do you believe that NASSs
security weaknesses could lead to potential violation of the agencys
statutorily required confidentiality pledge?
Mr. HARDEN. I would also like to get back to you on that.
[The information follows:]
As previously stated, we found multiple vulnerabilities on NASS network that
could affect the security of the information it collects and thus its confidentiality
statement. NASS is actively working to remediate the vulnerabilities.

Mr. ROONEY. USDA also has a good deal of secret and sensitive,
non-personally identifiable information, including sensitive information regarding its plant and animal disease research. What is
your assessment of the USDAs cyber security on this type of data?
Mr. HARDEN. That I dont think we have done recent work, but
I can look in to see what we have done in the past.
[The information follows:]
In our FY 2013 FISMA report, we continued to report a material weakness in
USDAs IT security, including agency IT security. The Department has not (1) developed policies, procedures, or strategies for continuous monitoring or risk management; (2) the Department and its agencies are not in compliance with baseline configurations; (3) vulnerabilities are not being remediated in a timely manner; (4) separated employees access to computer systems is not terminated in a timely manner;
(5) policies defining the detection and removal of unauthorized network connections
have not been developed or implemented; and (6) policies have not been issued defining required oversight of information technology systems that contractors or other
entities operate on USDAs behalf, including systems and services residing in the
cloud. Until these issues are resolved, all of USDAs information systems and the
information residing on these systems, including PII and sensitive information
(which includes plant and animal disease information) have an increased risk of
being lost, disclosed, altered, and/or destroyed.

Mr. ROONEY. Okay. I ask a lot of this because I also sit on the
Intelligence Committee, so this is sort of an area that I am interested in, so I appreciate your getting back to me on
The next question is, does the agency have sufficient resources
dedicated to protecting its secret non-personally identifiable information?
Mr. HARDEN. Thatlet me get back to you on that one, too.
Mr. ROONEY. Finally, Mr. Chairman, does the agency have appropriate safeguards in place to ensure only those allowed to access
the information are able to do so?
Ms. FONG. I am just going to interject here. And since you have
a background in intelligence and data, you know that every year
we have to do a review under the FISMA statute which does a comprehensive look at the Departments IT security across agencies
and from the whole IT security process from soup to nuts, and I
think it is safe to say that over the last few years, we have found
significant issues with the Departments overall IT security processes.
We have made 49 recommendations to correct them, to come into
compliance with NIST guidelines. And many of the questions that
you are asking really go to the kinds of points that we have been
making, that the Department needs to tighten up and come into
compliance in those areas. So I just wanted to offer that as background.
Mr. ROONEY. Well, if you could also help me with the answers
to those questions as well, maybe I can help you in that regard.
[The information follows:]

32
We had no audit work directed specifically at secret non-personally identifiable information. But, one consistent theme throughout the Department is not patching for
known vulnerabilities, which cybercriminals can use to exploit systems. As part of
our FY 2013 FISMA audit testing, we performed a vulnerability assessment on
seven agencies that were included in our FY 20082012 FISMA reviews to determine if each agency was mitigating its vulnerabilities in a timely manner and thus
improving its security posture. We compared the average number of vulnerabilities
per device identified in our 2013 scans to the average number of vulnerabilities
found during the previous FISMA reviews. For all seven agencies, the average number of vulnerabilities per device increasedin most cases the number doubled; and
for three agencies, the number increased by more than eightfold. As a result, USDA
systems have an increased risk of sensitive and PII information being lost, disclosed,
altered, or destroyed.

Mr. ROONEY. So thank you, Mr. Chairman.

Mr. ADERHOLT. Mr. Valadao.
Mr. VALADAO. Thank you, Mr. Chair.
WIC

You mentioned FNSs work with State agencies on fraud. I know

California has had problems with their WIC oversight. The WIC
moratorium in California was a product of abuse of the system, and
I am very pleased with the actionor action was taken. With that
being said, the moratorium was set in 2008, and little has changed
since then. What steps have been taken in California to address
the control of high risk vendors?
Mr. HARDEN. I do know, and it is information that we will have
to get to you later, but as part of our current review of the WIC
program where we are looking at how States are containing costs
or how costs for the food packages are determined, California is
part of our review and it touches on some of those questions.
[The information follows:]
We are currently reviewing FNS WIC program and California is one of the States
included in this audit review. Our audit objectives are to evaluate the factors that
contribute to the high average food costs reported for various states within the WIC
program. We will also evaluate FNS oversight activities for monitoring food costs.
We would be happy to brief the subcommittee once the report is ready to be issued.

Mr. VALADAO. One of the issues that we face, obviously in my

part of the country in California, we are suffering from this water
crisis and unemployment numbers are getting to pretty extreme
numbers now. WIC is obviously something that is important to a
lot of those people in the area, but at the same time, you have got
new stores opened up with an opportunity for those people to be
serviced or be able to purchase their product through stores closer
to home, something more convenient for these people, and that opportunity is not being afforded them, and I think it is something
that needs to be looked into, so I appreciate you looking into it and
seeing what we come up with. Thank you.
Mr. ADERHOLT. Mr. Bishop.
Mr. BISHOP. Thank you very much.
FOREIGN AGRICULTURE SERVICE

I have a question on foreign ag service. As you know, during

June of 2010, the U.S. Agents of International Development transferred $86.3 million to the Department of Agriculture for capacitybuilding activities in Afghanistan, and the OIG just recently released an audit of the Foreign Agriculture Services management of

33
those funds, and the programs activities in Afghanistan, and the
audit found that FAS had been aware of deficiencies in the management of the capacity-building activities over in Afghanistan for
quite a while, but did not adequately implement corrective actions
to strengthen the management and control of activities until 2
years after the auditafter the funds were disbursed, I should say.
The audit recommended that FAS forego accepting any further
USAID funds until full implementation in the form of a monitoring
process and other controls were put in place.
Has FAS begun to implement the recommendations as well as
those of their consultants? How muchcan you tell us how much
has been spent in the capacity-building activities before your audit,
and did you see any positive results from the money spent? And,
finally, does FAS have similar capacity-building programs in other
parts of the world, and if so, should we be concerned with the management of those programs as well?
Mr. HARDEN. In terms of whetherand I may not get all the
questions. If I forget one, I may ask to have it repeated. But in
terms of implementing the recommendations from the consultant in
response to our recommendation to get those started, we do know
that those are underway. From my understandingyou know, I
would have to rely on the numbers that are in the report in terms
of how much money they have spent in terms of what we looked
at. I do know that this was the largest amount of money in these
type of funds that they had ever tried to manage, and so they recognized that as we had discussions about that, that they really
were not equipped to handle it right off the bat.
And as far as capacity-building of this nature in other parts of
the world, I am not aware of any, but I will go back and ask.
[The information follows:]
The Department, under the Foreign Agricultural Services (FAS) oversight and administration, does fund and participate in various capacity building initiatives in
foreign countries, with the primary intent of building future markets for American
agricultural products and secondarily increasing agricultural productivity, agricultural services, and livelihoods in these countries. These projects include activities
such as developing or rebuilding local market infrastructures, rehabilitating watersheds and improving irrigation infrastructure, and providing agricultural technical
assistance to local producers. However, starting in 2010 with the transfers of Section 632(a) funds from U.S. Agency for International Development and/or the U.S.
Department of State, the level of funding and activities by the Department increased significantly, particularly for capacity building in Pakistan and Afghanistan.
Because of this significant increase in funding level, FAS commissioned an independent study to strengthen its policies and procedures and its control structure
and to ensure that it could properly administer the increased influx of funds. Also,
under the increased funding provided under the Section 632(a) funds, the Departments involvement changed. As part of the U.S. Governments Agricultural Assistance Strategy for Afghanistan, the Department partnered with the Afghanistan
Ministry for Agriculture, Irrigation, and Livestock (MAIL) to improve MAILs capacity to provide agricultural services to the Afghanis. In this situation, FAS worked
directly with MAIL to assist in developing a better infrastructure.

Mr. BISHOP. Thank you. Let me just look at the farm bill, which
was really a roadmap for the management of our USDA programs
for which we use. Can you tell us whether Congress addressed all
of the key issues facing the Department and moving into the future? Example, the question of who is really a farmer as the farm
bill terms it, who is actively engaged in farming, that isthat continues to be a somewhat vague issue and one that I think the De-

34
partment is developing regulations on. In theory, these regulations
will potentially address the concerns of many people who believe
that farm subsidies shouldthat farm subsidies often, not necessarily should, wind up in the hands of the people who arent
working on the farm or who dont have an active interest in the
farm.
FARM BILL AND OVERSIGHT

So my question is whether or not the farm bill did enough on this

and other ongoing issues, and what gaps in opportunities do you
see in terms of the challenges that are facing the Department in
managing agriculture under the farm bill?
Ms. FONG. Well, let me just generally comment that we are still
in the process of going through the farm bill, trying to get a handle
on what the new provisions are and what they might mean to us
as we develop our priorities for next years work.
I appreciate the fact that both you and Mr. Fortenberry have
raised the issue of actively engaged. I think that is a very difficult
and complex issue. I know in our history at USDA IG, we have had
a number of cases where we have taken successful prosecutions
against people who have taken advantage of some of the different
approaches to that, people whove, you know, engaged with some
created 17 or 18 straw partnerships to triple or quadruple or whatever the amount of money they get under that program fraudulently. So we are aware that there are some vulnerabilities in that,
and I appreciate your raising that.
PROGRAM FRAUD

Mr. BISHOP. How does the fraud, waste, and abuse with regard
to the insurance programs, the FSA programs stack up with the
fraud in nutrition in terms of dollars with the nutrition programs,
such as SNAP, WIC and the other nutrition programs?
Ms. ELLIS. I think that based on the work that we have done the
past several years and with the large influx of funds in the SNAP
program, we are seeing a large amount of fraud there just because
it is large dollars.
With regard to farm programs, I do know that we have cases
across the country both in the various farm program cases as well
as crop insurance. So far our work is not stacking up to the same
amount as we are on SNAP.
Mr. BISHOP. But in terms of the percentage of fraud and the dollars in fraud, do the nutrition programs add up to more fraud or
less fraud as compared to the disaster programs and the FSA programs?
Ms. ELLIS. It is hard for us to actually figure out what the fraud
amount is. What I can go based on is the type of work that we do
and where we are spending our time, and with regard to SNAP
Mr. BISHOP. You dont have any idea about the number of dollars?
Ms. ELLIS. No, because we dont know all of the fraud that is actually going on. There could be parts of fraud that I am just not
aware of.
Mr. BISHOP. I mean the ones that you have investigated
Ms. ELLIS. Right.

35
Mr. BISHOP [continuing]. And that you have found?
Ms. ELLIS. We havethe larger amount has been in the SNAP
program as opposed to the other farm programs.
Mr. BISHOP. And just to follow up on that, was it on the part of
those administering the program, was it on the part of those who
were recipients? Where do the fraudwas it the vendors?
Ms. ELLIS. With regard to SNAP, our responsibility is chiefly
with the retailers, so our work is mainly with the retailers and that
is where we are seeing the fraud. The States and the locals are responsible for dealing with the majority of the recipient fraud.
Ms. FONG. Just to offer a couple of comments on the dollars. Just
looking at our investigative statistics for the last 2 years or so, in
the farm programs, we had about $33 million in terms of investigative recoveries for fraud, and in the crop insurance program, about
$40 million. There is a huge case in North Carolina involving the
tobacco farmers that accounts for much of that. So I think what we
are seeing is that when we find fraud in those programs, they tend
to involve multi-million dollars and many people.
Mr. BISHOP. In the FSA programs?
Ms. FONG. FSA and RMA.
Mr. ADERHOLT. We are going to need to move on. Mr. Yoder.
Mr. YODER. Thank you, Mr. Chairman.
Inspector Fong, thank you for your testimony this morning. I appreciate having you before the committee. Certainly a lot of issues
have been covered. There are probably many, many more we wont
have time for this morning, as the USDAs a vast agency with a
lot of responsibilities. I think a lot of our conversation this morning
has been how we try to provide the services the USDA is supposed
to provide for the most amount of people and the most effective and
cost efficient way, which is, I think, what everybody, both parties
and everyone in this town, I think, hopes occurs.
WIC

I would like to discuss maybe one that hasnt been brought up

this morning, and this is the WIC program. And I dont know if you
are familiar with the Government Accountability Office report last
year about the WIC program in February of 2013, which was entitled Improved Oversight of Income Eligibility Determination
Needed, and it highlighted some disturbing trends that have occurred in the WIC program related to how States are implementing
it in an inconsistent manner, and it talks about, in part, how over
60 percent of States use only income within the last 30 days, when
the standard for WIC eligibility is annual household income. They
only count a portion of the income of a household instead of the
householdincome of every member of a household.
Some States have increased their eligibility threshold beyond the
185 percent of the Federal poverty level and their adjunctive eligibility options that as States increase the threshold for other programs, then they become adjunctively eligible for the WIC program.
The GAO study found that the FNS has never examined the reports for State and local WIC agencies compliance with Federal
regulations despite over one-third of the States having problems in
this area, and that the last time the FNS provided guidance to

36
States on the income eligibility determinations was 1999. This has
led to a point where now over half of the infants in the country,
born in this country start out on a Federal program. They start out
on the WIC program. And so we want to ensure the dollars we
spend go to the families that are most needy, and that the idea
that the majority of the country would be on these programs from
birth because of ineffective implementation from States is very concerning to, I think, all of us on the committee.
And I guess, are you familiar with this report, and what sort of
inspection have you looked into as to how the FNS could resolve
these concerns that were, I think, disturbingly brought up in the
GAO report?
Mr. HARDEN. I guess just as a way to start, being as GAO was
already looking at that, we did not do work on income eligibility
just so that we werent duplicating efforts, but yes, we were aware
of what they were doing.
Some of the work that we reported on last year that would be
a little different but is also part of the problem is how States oversee the vendors and their vendor management, because they have
a new rule on that, and we noted some similar type problems
where they werent doing the monitoring that they should have
been doing.
And currently we have work in process to look at how States
the cost of the food baskets for the different participants, to see
how some States make those dollars go further than others and if
there are ways that we could have more consistencies in that from
State to State.
Mr. YODER. So are you aware of FNS efforts to correct these
problems that were cited in the GAO report?
Mr. HARDEN. I would have to go back and look and see what they
said they were going to do. And I dont have specific work right
now to see if they are doing those, if that is what you are asking.
Mr. YODER. Right. So as far as you know, thesethe States implementation that is inconsistent in allowing these things to occur,
it is continuing to this very day?
Mr. HARDEN. We are seeing some of that in our work, that there
are inconsistencies from State to State.
Mr. YODER. Well, I would actually look into that. There are
many, many areas where this occurs where we have States that
dont follow the guidelines, and it is not fair, and I think the folks
in States that do follow the guidelines and if the policies are implemented in an inconsistent way, it doesnt get to the people that
need it the most as these programs get stretched and expanded beyond our capacity toto support them.
Just maybe one general question on USDA and their size and operation. I mean, one of our hopes on this committee is that we can,
you know, run a leaner operation in Washington, D.C., therefore allowing the dollars that we do spend here that are scarce, to be able
to spend them to actually help folks who need them the most.
What measures have you suggested or have you seen USDA can
use to provide greater services to farmers and folks that they are
charged with overseeing and regulating and providing services to
in a more cost-effective manner using technology, or in a way that

37
might create savings over the long-term? How can we run the
USDA in a more cost-effective manner?
OPERATIONAL EFFICIENCY

Mr. HARDEN. I have to go back and pull some specific recommendations, but we have noted across the Department and in
terms of talking to the program officials, the agency has, in terms
of now that you are in a leaner operating environment, to really
look at their operations from a risk-based approach to make sure
that they are prioritizing their work and monitoring where they
really need to be spending that.
[The information follows:]

38

39

40

41
Mr. HARDEN. The analogy I use with them is, in the past, if you
had a priority to look at 10 things, and you cant look at all 10
things anymore, you can only look at five, tell me what those five
are and how you got to those decisions so we can either agree or
disagree as to how you got there.
And there is a variety of work that we have done, and I have to
go back and pull specifics where we talked to them about their use
of computer information systems in rural development as well as
some of the farm programs to better use that information or have
the information to do it on a leaner staff.
Mr. YODER. And the reason I really go to this pointI think this
was brought up by one of my colleagues as well, is that you have,
you know, we have fewer farmers today than we had years ago,
and is the USDA, are their operations consistent with the dollars
per farmer ratio? How are we responding to the changing agricultural world?
Ms. FONG. I think one of the things that we have been seeing in
our reviews across the board is, as you mentioned, it is important
that the States implement effectively and consistently all the programs that they have. It is also important that USDA program
managers and agency officials communicate effectively with their
State and regional structures, the Federal structures. As the programs decentralize and more staff is put into the field and the responsibilities devolve into the field, it is critical that the field employees really understand the programs, the requirements of the
programs as they administer them, with respect to individual farmers, conservationists and ranchers.
We are seeing that with the departure of institutional knowledge
and less staff and perhaps less training, there needs to be increased focus on that, on the part of the USDA officials at the management level.
Mr. YODER. All right. Thank you for your response. Thank you,
Mr. Chairman.
Mr. ADERHOLT. Inspector General, when I started out the questioning, we talked about the challenges and the Department knew
enough to address some of the issues and successes that we see.
Let me pose one question to you just summing that up.
DEPARTMENTAL PRIORITIES

If you were the Secretary, what would you focus your efforts on
in that regard as far as trying to make sure that the issues that
are before you that you see that need to be dealt with from your
chair as Inspector General and you were advising the Secretary, or
if you were to change positions to be the Secretary, what would be
the effort that you would focus on?
Ms. FONG. I think it all goes back to the very basic issue of leading and managing the Department with a diverse portfolio. You
have to set a very strong tone, which I believe the Secretary does,
that management is important. It is important in delivering our
programs that we deliver them effectively to the right people and
that we avoid situations where fraud or improper payments could
occur. And that message needs to then permeate the organization.
It is a huge organization. I think each agency has its challenges in
terms of workforce and resources and training and priorities, but

42
I do believe that this Secretary and Deputy Secretary have set that
tone and are willing to be very supportive of the message that we
bring forward as the Inspector Generals office. When we find situations that require attention, we find that the Department does respond very positively to that.
Mr. ADERHOLT. The USDA is making improvements but still has
problems with accurate reporting of improper payments as we have
discussed. In your testimony, you note that USDA has taken more
effective measures, or if they had taken more effective measures to
avoid noncompliance, it could avoid $74 million in improper payments. What could USDA have done to save that $74 million?
IMPROPER PAYMENTS

Ms. FONG. I think that goes back to our audit report that we
were discussing a few minutes earlier about whether USDA was in
compliance with the Improper Payments Act; and the $74 million
is our estimate of what USDA could have avoided if it had taken
steps to comply with every portion of that Act.
Mr. HARDEN. More specifically, if they had met the targets for reducing improper payments that they set for themselves, or for the
six programs that that was associated with, they would have avoided $74 million in improper payments; so it is them meeting their
targets.
Ms. FONG. You all probably are aware that the provisions in the
Improper Payments Act now require USDA to work with OMB to
actively address the situations this year because it has been 2
years in a row that the Department has not met those targets.
What happens next year is if the Department continues to miss its
targets, the Department is then required to work with Congress to
determine ways to address these issues, so there is an escalating
set of requirements in the Act.
SNAP FRAUD

Mr. ADERHOLT. Your report on SNAP retailers raise concerns

about the Food and Nutrition Services ability to effectively carry
out oversight and enforcement activities related to fraud, and we
have talked quite a bit this morning about the SNAP issues; but
the subcommittee has repeatedly directed USDA to permanently
disbar retailers that are found guilty of fraud, yet the report found
that some retailers were still participating in the SNAP program
after being permanently disqualified. What more does the Food and
Nutrition Services need to do to ensure fraudulent retailers are
permanently removed from SNAP?
Mr. HARDEN. That is where we made recommendations where we
felt that legislative changes were needed, and we are currently
working with FNS to get agreement on those. Their most current
statements to us is that there were changes in the farm bill that
may address some of the issues that we had. We are waiting for
them to show us those things to see if whatever the provisions
were would address the problem. If not, we will continue to work
with the Department to make that a proposal, because that is
something we feel that should be done.
Mr. ADERHOLT. Thank you. Mr. Farr.

43
Mr. FARR. Thank you, Mr. Chairman. I want to invite you out
to my district. It is a different perspective on agriculture than I
think your State. I represent one county, Monterey County, that
the gross sales ofthere is over 100 crops grown in the county, and
the gross sales exceed that of 25 States in the United States of
their total agricultural sales. And it doesnt have any subsidies at
all. No water subsidies, no power subsidies, no conservation subsidies, no price support. We dont grow the commodity programs,
but we do rely on, you know, people eating nutritious food because
that is what we grow, the salad mix of the world.
And we have a lot of poor people harvesting those crops, and
they do rely on the WIC program and the SNAP program, and I
think it is right that we look at particularly the retailers that are
defrauding. Individuals, I think that amount of money to try to collect from a poor person because they bought the wrong thing is, we
ought to put the emphasis on, as you have stated, on the retailers.
FOREIGN AGRICULTURE SERVICE

I want to shift, because I think one of the biggest frauds that has
happened to the United States has been our expenditures on the
war efforts in Iraq and Afghanistan. All we hear every day is the
amount of contracts that have been let that dontand you talk in
your paper about, and I think Mr. Bishop brought it up, about capacity building. And as a returned Peace Corps volunteer, I am
very interested in countries capacity building.
We just got back from Colombia, which we did a very successful
thing with capacity building there. The unfortunate thing is that
almost every single contract let was to an American company, so
we really werent building capacity within Colombia or Afghanistan
or Iraq. We were building capacity of American contractors.
Your report points out that the Department of International Development transferred $86.3 million to USDA to work on capacity
building, I guess agricultural capacity building in Afghanistan; and
your review found that senior managers of FAS were aware of the
general control weakness before receiving the funding. Nevertheless, the FAS had not implemented performance-monitoring plans
for all the projects until over 2 years after the first project began.
You go on to say, without adequate management controls in place,
FAS cannot effectively monitor these projects and faces difficulty in
providing adequate insurance that the funds are effectively accomplishing the program goals, the program goals being capacity building.
FAS has agreed to all the recommendations. So what happened?
Did anything happen? You just agreed to the fact that you indicated that these things werent in place and that there was money
misspent?
I dont think Congress is asking enough questions about how our
money is being spent, and I think capacity building is very important, but we ended up trying to dictate what capacities they ought
to build, spend our money on it, and they dont use it, like that big,
huge warehouse that we built in Afghanistan, millions of dollars,
that the Afghans didnt want. We found out in Iraq we built all
kinds of generators for people but never taught them how to run
the generators or change the oil and all that is melted down. I

44
mean, there is tons and tons, millions and probably billions of dollars misspent.
As your Council of the Inspector Generals on Integrity and Efficiency, have you collectively looked at our capacity building, socalled capacity building expenditures, in our war effort? Because
you are looking agency by agency, and I wonder what the sum total
of that
Ms. FONG. Actually, USDA has a very small piece of capacity
building in effect in Afghanistan. Most of the money that is going
there my understanding is it is coming through State, Defense, and
AID, and the Inspectors General at those agencies are working together very closely. They are on the ground in Afghanistan. The
Special Inspector General for Afghanistan Reconstruction has
issued a number of very hard-hitting reports showing that the
funds have not been going to where they should be going.
My understanding is that at USDA, this is the one piece of the
funding pot that we have. We dont have any more because FAS
recognizes that it needs to put into place a management system of
controls before it accepts any more funds. So I think from a macro
level, the IGs are in there. At USDA, it is a very small piece of our
portfolio.
Mr. FARR. In this case they knew before they even received the
money they didnt have adequate implementation in place?
Mr. HARDEN. Yes, and part of the reason why we couldnt get any
further into that issue is there was lots of finger pointing when we
started asking the questions, and the people that accepted the
money and were running the programs when it started are no
longer there.
Mr. FARR. I know my time is expired, but I just want to have
you think about this. Capacity building is our future. If we are
going to get out of anything, we have got to leave the host company
with its capacity to function. And it seems to me we do not review.
We just sort of throw money. It is a war. We got to fight the war,
and we waste so damned much money that we shouldnt be wasting. We ought to be smarter about capacity building, and we ought
to have your inputs on how to do that.
Mr. ADERHOLT. Mr. Fortenberry.
Mr. FORTENBERRY. Give me your highest recommendations, your
best recommendations, for legal changes that would save money
and improve outcomes.
LEGISLATIVE RECOMMENDATIONS

Ms. FONG. Well, I think we talked a little bit a few minutes ago
about our recommendations in the retailers, the SNAP retailer report. Other recommendations are to look at implementation of how
programs are being run. I am thinking in terms primarily of the
crop insurance program to make sure that the improper payments
rates are being hit there and that the program is being implemented and overseen as effectively as it can be as well as the conservation programs. There have been a number of new programs
enacted that we want to take a look at. We recognize that there
are a number of management challenges there that need to be addressed.

45
Mr. FORTENBERRY. I assume the mission of your office is twofold.
One is to ensure effective implementation of the law as written by
Congress, but then to turn and make suggestions about how if the
general goal is such, certain programmatic changes empowered by
legal considerations could be implemented to make, again, the outcome more effective. The more you can specify that, the more helpful it is. This conversation has been very good and productive and
helpful, but again, bringing it down into very narrow specifics that
we can include in must-pass bills. Not a lot of things get passed
on a regular basis; but when we have something that can improve
outcomes and save money, it is helpful, I think, to all of us, speaking on behalf of my colleagues, with limited staff and limited resources to be able to pinpoint specific things in terms of an outcome
here.
Again, it is not meant to put you in a political position, but consistent with the mission that is already laid out in law, if certain
changes would be made, this mission would be met better and/or
savings could be achieved.
Ms. FONG. In that spirit, I would draw the committees attention
to the question of overlap and duplication in programs. I think all
of you know that GAO has issued a number of reports on overlap
and duplication across government entities. And some of the issues
that they identify were potential overlap in nutrition programs as
well as potential overlap in RD and business enterprise programs.
And we have issued a report, I think in the last year, making some
recommendations with respect to nutrition programs and how the
Department and Congress could think about those issues.
We are in the process of doing a report on potential overlap and
duplication in the RD business enterprise programs which I think
will be issued in the next several months, so I would draw your attention to some of those reports.
Mr. FORTENBERRY. I am familiar with the GAOs last work in
this regard, and I think they are in the process of updating that
now. One of the difficulties is we always want a number. Give us
the number of what we can save. In those reports, the GAO is hesitant to give a number, preferring instead to talk in terms of broad
ranges of a probability of tens of millions of dollars, where some
people interpret this as into the billions or even hundreds of billions of dollars. So that is one of the difficult problems here, again,
to narrow it down and to try to get hard numbers, so that we can
prioritize what makes sense and work it through a process here
which is, again, quite difficult to get consensus with.
Thank you, Mr. Chairman.
Mr. ADERHOLT. Ms. Pingree.
Ms. PINGREE. Thank you, Mr. Chair. Thank you for all your comments and answers here today.
ACTIVELY ENGAGED RULES

At the risk of duplicating, I just want to reinforce what Mr. Fortenberry talked about; Mr. Bishop talked about this, and I mentioned it in the beginning; but I do think there is particular interest in some of the things that you talked about, the actively-engaged rules. Mr. Bishop said, you know, the idea of people who receive direct payments and other subsidies that have nothing to do

46
with or arent really participants in farming. I know there is always a lot of political interest around SNAP and SNAP recipients
and retailers and all the fraud and potential fraud in that program
and how much it can add up because of the big dollars in the program; but as you mentioned earlier, sometimes in the subsidy programs when you discover that there has been a lot of people involved, $33 million, $40 million, nothing gets under peoples skin
like this idea that there are crop subsidies going out there that
dont go to farmers they go to, you know, mainly ZIP Codes in big
east coast cities. I mean, there is just a lot of interest in this, and
I know you have done some work; but I just want to reinforce that
this is an area, I think, of continuing concern. It came up a lot in
the farm bill, and with all the changes in the farm bill I know it
will take you a while to sort out how this could be looked at; but
I just think it is a really critical area to be examined. The dollars
are high.
You mentioned that there is always a lot of exotic legal arrangements, legal maneuvers. I would say the second thing that really
gets under peoples skin is when they realize that a lot of lawyers
figure out a lot of fancy maneuvers and then somehow the money
doesnt go to the right people.
Mr. Farr mentioned an issue that is a big issue in my district.
I dont have a lot of subsidized crops. I dont have corn, wheat, all
the big ones; but we have a lot of vegetable growers, a lot of people
who are trying to expand their very small farms. And the first
thing they will always say to me is how come the money always
goes to all those other guys and there is so little available to us?
It is a huge resource issue for USDA. Every time we manage to
enhance a little bit in some of those areas, people always look at
it and say, well, what about the billion, 70 times as much money
goes into the commodity crops as into specialty crops, which is
really the vegetables and things that people want to buy locally.
They want to buy direct. There is huge consumer interest in this.
I just cant say it enough. I thought that one of my issues that
I was so pleased that Mr. Fortenberry brought up but I was going
to say the same thing is sometimes the only way you can skirt a
legal maneuver is by understanding what legal changes Congress
can make that at least it will take the lawyers 3 years to figure
out how to change it again.
So I think that is extremely beneficial, particularly in this area,
where it is not just the simple thing of, you know, SNAP fraud,
somebody gives their card to somebody else. You know, it is not
that easy. It is very complicated. I understand that, but sometimes
that means we need real suggestions and ideas of how to get at the
root of this and how to make those changes, because I think this
is a big issue in how resources are divided around supporting farmers in this country and very lopsided. And as you said, when the
fraud is discovered, it is usually big. It involves a lot of people, and
it is often not going to the people who are literally are putting the
hard work in a farm every day.
So I do hope as you are looking into the next year and how your
resources will be spent, that you really hear that that is bipartisan
across the board, across the country, people are concerned with
that issue.

47
The only other thing I wanted to bring up, and I think you have
answered a lot of questions about are there adequate resources; it
seems as though given the number of things we want to know
about and the challenges that are out there, there are never adequate resources, particularly in cost-cutting time, but it would be
helpful just to hear a little bit more about that.
WIC

Oh, and the only other specific question I was going to ask you
previously, you mentioned something that you were looking into in
the future about WIC food costs. I didnt know exactly what you
were referring to. So to the little time I have, and I know you are
going to say you need more resources; so maybe you should answer
the food cost thing first.
Mr. HARDEN. On the WIC food costs, we have got an audit currently underway where we are looking at how States manage those
costs and with the food packages. We have seen some States have
high food costs, others have lower food costs and see if there is any
efficiencies or consistencies that can go from one State to another.
That is something we are working on now and expect to have out
in the next several months.
Ms. PINGREE. Thanks. I am good.
Mr. ADERHOLT. Mr. Bishop.
PIGFORD II

Mr. BISHOP. Thank you very much. The OIG recently released its
Pigford II audit, which was required by Congress as a part of
agreeing to fund the settlement of the case against the Department. I was pleased to learn that in your opinion, the final adjudication process of Pigford claims and related administrative issues
went relatively smooth outside of a handful of claims, I think about
20, which may not have been handled properly.
In your audit report you said that in connection with our audit,
nothing came to our attention to indicate that the administrative
entities were not adequately implementing the claims process in
accordance with the settlement agreement. So it would appear that
USDA and the Department of Justice did a pretty good job in managing and placing the adequate controls on the final adjudication
process. Would you say that that is correct? And of the 20 problems
that you had, how many claims were successfully paid out appropriately?
Ms. FONG. Let me just offer a couple of comments on that audit.
As you point out, we are required by law to do an audit, a statistical sampling audit, of finally adjudicated claims. Because this
issue has been of great interest to a lot of people, we decided to
do an audit prior to final payout of claims just to make sure that
the process was running correctly; and so as you pointed out, we
generally found that the process that was developed was a good
process to handle the adjudication. We did find some problems that
we pointed out to the neutral and arbitrator, and they, to their
credit, took action on those during our audit and are dealing with
that.
They are now in the process of getting ready to pay the claims,
at which point we are now starting our statutorily-required audit

48
of the claims that have actually been paid to make sure that the
money is going to the right people who are eligible. So I just wanted to tell you that we are doing a little bit more than required by
law to ensure that this whole process runs effectively.
Mr. BISHOP. How many total claims were there, are you paying
out?
Mr. HARDEN. Say in the neighborhood of 40,000. I would have to
go back and get the specifics.
Mr. BISHOP. Somewhere in the neighborhood of 40,000?
Mr. HARDEN. I think so, but I would have to go back and
[The information follows:]
With respect to the In re Black Farmers Discrimination Litigation, the Claims Administrator received approximately 40,000 claims during the entire claims process.
According to the final accounting document, dated August 2013, 18,409 Track A
claims were approved for awards, totaling over $1.1 billion. There were no Track
B claims approved.

Ms. FONG. That are going through the process.

Mr. BISHOP. And you picked up some possible problems with 20
of those?
Ms. FONG. Well, we took a sample of 100 claims to look at, and
of those 100 claims we found 35 of them had some questions. So
that was a random sample. At this stage of the game we are now
involved in auditing claims that have actually been paid, and we
will see how that turns out.
BUDGET IMPACTS

Mr. BISHOP. With regard to the staff reductions that you have experienced, you have gone through several staff reductions, including volunteer buyouts and early retirements. Given the impact of
sequestration and the related administrative reductions in the Department spending, your staff has been hit pretty hard. What has
been the impact on your ability to carry out your responsibilities,
to identify and undertake new audits and investigations with
which you are tasked; and are there audits which you would like
to have undertaken but you were unable to undertake as a result
of a lack of funding or a lack of staff?
Ms. FONG. Well, as you know, we were not exempt from any of
the reductions and sequestrations, and as a result of that, we have
taken significant reductions to our resources, especially on our
staff. We are at the lowest level of staffing that we have ever had.
And because of that, we have had to really narrowly define our priorities and we have only been able to focus on the highest priority
work.
We are very grateful for the increase that you all are giving us
in 2014. In fiscal year 2013, we had to basically eliminate training.
There was a period of time where we could not do any job-related
travel on our investigation side, which, as you can imagine, was
very challenging because allegations of fraud come in from around
the country; and if our investigators cant travel there, they cant
really look into that.
On the audit side, we have lost very experienced staff. We are
unable to backfill there. And so we werent able to undertake all
of the audits that we would normally want to undertake. As you
know, the IG function is a level of resource function. To the extent

49
that we have resources, we can do more work, and we can bring
back our return on investment, which is roughly $12 for every dollar invested, so we believe that we are a good investment for the
taxpayer.
Mr. BISHOP. But you havent been able to do all that you were
obligated to do with the directives that you received from Congress
and under the law because of limited resources?
Mr. HARDEN. I would say on the audit side, the way we continue
to prioritize our work, those mandatory items, if we have direction
from Congress on like the financial statements or IT security or improper payments, those go at the top of the list. Those are the first
ones that are going to be part of the plan. Then we go into what
I view as our discretionary time; and that is where we really look
at the risks associated with different programs of the Department.
Are they a new program? Have we seen problems before? And we
continuously have to prioritize that each year. As staff has gone
down, then there is less to this plan; but we, you know, try to keep
that on the forefront as we go.
Mr. BISHOP. Thank you.
Mr. ADERHOLT. Let me follow-up with a little bit of what Mr.
Bishop was talking about as far as the resources. In your testimony
in the most recent semiannual report to Congress, which was released last December, you write that since fiscal year 2012, the Office of Inspector Generals appropriations have fallen to the lowest
level since 2008, and the staffing is at the lowest level the agency
has established. Of course, Congress was able to provide full funding for your office for fiscal year 2014. Will this allow you to address the staffing needs?
Ms. FONG. We are, right now, backfilling or filling critical vacancies that became vacant, and that is very important to us. We are
also anticipating that we will be able to do some hiring of entry
level auditors and investigators which is critical to our future success. We have not been able to hire new staff for several years because of hiring freezes and, you know, the potential for furlough,
which fortunately we didnt have to do. So we are looking this year
to bring back and fill some critical vacancies. We dont have a precise number yet, but we can keep your staff apprised of that.
Mr. ADERHOLT. How will the full funding affect the priorities
that you set for your audits and investigations for the remainder
of the fiscal year?
Mr. HARDEN. I guess the way I would answer that is we are implementing our plan as we put it out last October. But next week,
I meet with all of my audit directors from around the country to
talk about are there any mid-course corrections that we need to
make? Is there anything that we thought was a priority that really
wasnt the priority that it needed to be; is there something that
needs to take its place? That is something we do at least twice a
year to see if there is any specific changes. And then we make
changes to the plan as different things come in and are brought to
our attention like if there is a congressional request or something
from the Secretarys office.

50
IT SECURITY

Mr. ADERHOLT. Inspector Fong, you talked a little bit about IT

security. In fiscal year 2010, 2011 and 2012, USDA had the worst
cyber security score of all the large departments. As you know,
USDAs score comes from your office or the office of the chief information officer. The score board for fiscal year 2013 has not yet
been released. Do you see improvements?
Ms. FONG. We would characterize the Departments progress on
this as slow but moving in the right direction. We have, as you all
know, issued a number of very significant audits on various aspects
of the IT security program at USDA. The bottom line here is that
the CIO recognizes that this is a major weakness that needs to be
addressed. And what we are recommending to the CIO is that they
identify and focus on a priority grouping of issues to deal with and
accomplish that and then go ahead and move on with identifying
a second group and a third group and a fourth group, so that at
least they can show measurable progress. What we have seen is
that in the last year, the CIO has issued some significant policy directives in three areas in the Department to give guidance to the
agencies. We think that is a very good first step. They need to keep
continuing to take concrete steps and ensuring that the agencies
then implement within their own jurisdictions, and that, I think,
is one of the big challenges for the CIO.
Mr. ADERHOLT. Does Congress need to consider legislative
changes to help USDA address the problem?
Ms. FONG. I should give some thought to that. My initial response is that there is quite a bit of guidance in law and regulation. NIST puts out all kinds of directives on how these programs
need to be addressed. I dont think there is a lack of guidance and
requirements. So I am not sure what additional legislative action
would be appropriate. Perhaps continuous reporting might be useful.
Mr. ADERHOLT. Mr. Farr.
Mr. FARR. Thank you very much, Mr. Chairman. I know as we
have this discussion, it strikes me that the IGs are sort of the fiscal
grand jury of the Federal Government. You do these reviews like
our civil grand juries do back in California, and they come up with
recommendations for how a local government can improve itself. I
just wondered if, as chair of the Council of Inspector Generals on
Integrity and Efficiency, CIGIE; is that what you call it?
Ms. FONG. CIGIE.
Mr. FARR. How do you pronounce it?
Ms. FONG. CIGIE.
Mr. FARR. CIGIE. As chair of CIGIE, is there a report that
CIGIE puts out every year sort of prioritizing what are the common
needs of across-the-board, all 73 agencies that have IGs?
Ms. FONG. Actually we do. We put out an annual report to Congress and the President. And I would be happy to provide your
staff with a copy of that.
Mr. FARR. Yeah, I think it would be very interesting. I think Mr.
Fortenberry and Ms. Pingree, and what all of us up here have said
is that we are looking for fixing things that are broken. I would
hope that maybe even the Council could talk about it. Do the re-

51
ports the way you are doing, but it would also be very helpful to
us if you get a list of, this is the first hearing we have, so all of
the Department of Agriculture is going to come in here after you,
and it would really be good to set us up with, you know, things
that, you know, need fixing, that we could address our approach to,
address our questions to.
So I think that the presentation for all IGs would be improved
if we could get those kinds of questions that everybody here has
been asking you; and I just take it back to the Council and see if
that could be part of the presentations that you all make. I think
it would put us and your IGs in general in a much better, more
useful, I guess, more useful to us as lawmakers rather than just
certainly the audits are important and all of that, but the information from those audits is try to improve our law making. That is
what we do, and our allocation of limited resources. Thank you, Mr.
Chairman.
Mr. ADERHOLT. Mr. Bishop.
Mr. BISHOP. Nothing.
Mr. ADERHOLT. Okay. Well, thank you for your testimony here
this morning, and we look forward to working with you as we go
through the appropriations for fiscal year 2015; and, again, we appreciate your information and look forward to following up on some
of the things you will be presenting to the subcommittee on the follow-up questions, so with this, the hearing is adjourned.

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THURSDAY, MARCH 6, 2014.

COMMODITY FUTURES TRADING COMMISSION
WITNESS
HON. MARK WETJEN, ACTING CHAIRMAN, COMMODITY FUTURES
TRADING COMMISSION

Mr. ADERHOLT. Okay. The subcommittee will come to order.

Chairman Wetjen, I welcome you today to the subcommittee. We
apologize for a late start, but votes were called, and of course, we
are not in control of the vote schedule. So thank you for bearing
with us on that.
Congratulations on your new job and new role as Acting Chair.
I appreciate your taking the opportunity to testify. As the Acting
Chairman and accommodating our short schedule this year to have
this hearing in order to accommodate our regular order, we look
forward to your testimony this morning and hearing from you.
As we all know, the Commodity Futures Trading Commission is
responsible for principle-based regulations of commodities, futures,
options and swap markets in the marketplace. These markets are
integral to our Nations free enterprise system.
Some would say that the CFTC is resource starved. I think we
need to take a closer look at that perception. This agency has received seven consecutive annual increases in funding, an overall increase of 92 percent since the financial crisis of 2008.
There are not many agencies that have enjoyed such an increase.
For this reason, I am glad to see the decreased budget request of
$280 million and the Presidents acknowledgement that this committee has been saying for a while now that the requests for the
past few years were inflated and not based on real needs.
One of those issues I want to be sure to address today is the absolutely unnecessary furloughs that occurred in 2013. I understand
that this did not happen under your watch as the chairman, but
I do want to be sure that the employees of the CFTC understand
that they were victims of what some of us think were some questionable decision making.
We sent out a statement on October 24th, 2013, and it was reported to the press that the CFTC had explicit legal authority to
spend amounts necessary to avoid furloughs. At that time, CFTC
told me that they could not use the authority.
However, a short while later, in January, two days after the day
of agency-wide unpaid leave, CFTC used this same authority to
prevent more furloughs. CFTCs choice to not prevent all agency
furloughs rests squarely on its shoulder.
With regard to CFTCs fiscal year 2015 budget request, I look
forward to ensuring that CFTC puts priority on resources by performing core functions properly and avoiding regulatory overreach.
(135)

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CFTC has finished the majority of the rulemaking under the DoddFrank bill without the bloated budget request over the past few
years.
Similarly, they should be able to implement the regulations without excessive funding increases. As I say, we look forward to working with the CFTC to find ways to streamline operations, put a priority on the resources that are there, and avoid unnecessary regulatory overreach.
Before we recognize you, Mr. Chairman, for your opening statement, I would like to recognize the Ranking Member of the subcommittee, the distinguished gentleman from California, Mr. Farr.
Mr. FARR. Well, thank you, Mr. Chairman.
And I would like to echo your words. Congratulations and thank
you for being here today.
I was impressed with your testimony. What happens in this committee is it is sort of a push-pull here. Some people think that we
are going to solve our problems by cutting everything, and others
feel that we are going to solve our problems by adding everything.
I was just interested in where the two areas, and you do not
have to answer this right now because this is opening statement,
but I want to address a sentence in your statement, that for the
responsibility that we have given you in law that Congress has enacted, Dodd-Frank, how many cops do you need on the beat.
At the same time, this issue on technology, I mean, your increase
is 70 percent increase in technology, and the play between using
technology so that you can have less employees, I mean, is just a
smart, modern operation. But it seems to me that you cannot use
technology for cops on the beat. I mean, we have not replaced in
all the technology we use in law enforcement; we have not replaced
literally the cop on the street.
Perhaps you can share with us how that interplays and why you
need to sustain the budget that the President has asked for.
Mr. ADERHOLT. Thank you, Mr. Farr.
With that, I will turn it over to you, Chairman Wetjen.
Without objection, your full testimony will be included in the
record. If you would like to summarize your testimony and hit the
highlights and then we can proceed with the questions.
Again, we know we started late. So we will try to make up some
time in trying to condense some things. So, again, welcome. We
look forward to your testimony.
Mr. WETJEN. Thank you very much, Mr. Chairman.
Good morning, Chairman Aderholt, Ranking Member Farr, and
members of the subcommittee. Thank you for inviting me to the
hearing today on the Presidents fiscal year 2015 budget request for
the Commission.
In both my written and delivered remarks, I attempt to provide
this subcommittee useful context to the important role the Commission plays in the financial system and the economy as a whole,
as well as the important role this committee plays in helping our
agency achieve its mission.
I also hope to provide a clear picture of the potential risks posed
by the continued state of underfunding for the agency.
As you know, the Commission was directed by Congress to police
the derivatives markets, which includes futures, options, and

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swaps contracts relating to underlying commodities. These markets
are critical to the efficient functioning of the global financial system and the economies it supports. Without them, a farmer cannot
lock in a price for his crop. A small business cannot lock in an interest rate that would otherwise fluctuate, perhaps raising its
costs. A global manufacturer cannot lock in a currency value, making it harder to plan and grow its global business. And a lender
cannot manage its assets and balance sheet to ensure it can continue lending, fueling the economy and the process.
The derivatives markets better enable these enterprises to do
what they do best, create jobs and grow the economy. When not
overseen properly, irregularities or failures of firms in these markets can severely and negatively impact the economy and cause
dramatic losses for individual participants, and this is why appropriately funding the CFTC is so critical.
The unfortunate reality is that at current funding levels the
Commission is unable to adequately fulfill the mission Congress
gave it. That mission is to prevent disruptions to market integrity
and the build-up of systemic risk, as well as ensure that these markets are free of fraud and manipulation.
Recent increases in the agencys funding have been essential and
appreciated. They have not, however, kept pace with the growth of
the commissions responsibilities, including under Dodd-Frank.
Allow me to explain how the markets we oversee and the responsibilities of the Commission have grown.
The notional value of derivatives centrally cleared by clearinghouses was $124 trillion in 2010 and is now $223 trillion. That is
nearly a 100 percent increase. Now more than ever a clearinghouses failure to follow international guidelines in the commissions regulations designed to ensure proper risk management
could have significant economic consequences.
The amount of customer funds managed by clearinghouses and
futures commission merchants was $177 billion in 2010, and is now
over $225 billion. The Commissions rules are designed to ensure
customer funds are safely kept by these firms, and a failure to provide appropriate oversight increases the chance of risky practices,
placing customer funds at risk.
I must remind the committee that two such firms have failed in
the last few years.
The total number of registrants and registered entities overseen
directly by the Commission, depending on the measure, has increased by at least 40 percent in the last four years. This includes
99 swap dealers, two major swap participants, and dozens of clearinghouses and trading venues.
The CFTC also oversees more than 4,000 advisors and operators
of managed funds, some of which have significant outward exposures across the financial markets.
Additionally, the Commission directly or indirectly supervises approximately another 64,000 registrants. These intermediaries are
by and large well run firms that perform important services for
their customers. But those relying upon these firms in the American public deserve assurances that the risks the firms pose are
being mitigated by an agency capable of meaningful oversight. Yet

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the agencys current onboard staff responsible for this mission is
just 644 employees.
The fiscal year 2015 request is a significant step towards the
longer term funding level that is necessary to fully and responsibly
fulfill the agencys core mission. It recognizes the immediate need
for an appropriation of $280 million and approximately 920 staffyears, which is heavily weighted towards examinations, surveillance, and technology functions.
The request balances the need for more technological tools to
monitor the markets and identify risk and compliance issues with
the need for expert staff to analyze the data collected through technology.
In conclusion, the Commissions ability to appropriately oversee
the derivatives marketplace hinges on security additional resources.
Thank you for inviting me today, and I would be happy to answer any questions.
Mr. ADERHOLT. Thank you, Mr. Chairman.
As I mentioned in my opening statement, I would like to correct
the misperception that CFTC has been purposely starved for resources since the financial crisis of 2008. CFTC has received a 91
percent increase in funding, practically doubling its size from 112
million to 215 million. Yet we constantly read in the press that the
agency is just barely getting by, and you yourself have referred to
the agency as resource constrained at different hearings.
Given the substantial increase in funding and the work that
CFTC has already accomplished, why CFTC needs another 30 percent increase in funding is what we would, you know, like to hear
your argument on that.
Mr. WETJEN. I appreciate the question, Mr. Chairman.
I tried to in my previous remarks just now give a number of different measurements of both the marketplace and the entities that
function in the marketplace that we oversee, and I tried to give a
sense of scale and also a sense of the increase in responsibilities.
And on the scale side, those two measurements of the notional
value of the market plus the amount of customer funds that are
supposed to be safely kept under our regulations by both clearinghouses and FCMs is a good measure.
And then I think the total number of registered entities that we
either directly or indirectly oversee is a rather large number. As I
said, it is roughly a total of 68,000 registered entities, and that reflects an increase in one of the subcategories of about 40 percent
over the last several years.
So all that said, those descriptions try to give you a sense that
the responsibilities have, in fact, grown. Some of that is a function
of new responsibilities given in recent years, but the rest of it has
to do with just regular organic growth in the marketplace and organic growth among the registered entities who are trying to serve
needs for participants in these markets.
Mr. ADERHOLT. Of course, the President did decrease the budget
request this year, and what is your rationale of his decrease?
Mr. WETJEN. Well, the budget request this year and in previous
years when I have been involved in the process, I have always
looked at each of them with the three primary focuses in mind, if

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you will, and I have always looked at these requests to determine
are we doing enough on the three core functions of surveillance, examinations, and enforcement.
And prior to my current role, I would review them with those
goals in mind, to look and see are we leveraging technology sufficiently and are we including or adding enough staff to make sure
we can satisfy those three key areas.
I believe previous budget requests did that. I think todays budget request before you that we are here to discuss will put us in a
very, very strong footing if funded at that level. I think we are
going to be able to do a level job on those three key areas.
The other thing I would point out is that the request this year
is a little bit different because it tries to be respectful of the Congress direction through the budget resolution, which basically
called for level funding for discretionary spending as it relates to
the current level of spending on the discretionary side. So in light
of that it just felt sensible and the right thing to do to be a little
bit more constrained or restrained in the request.
Mr. ADERHOLT. Well, I understand that this is the first time that
you have been the chairman as far as with the budget, and so you
have not had as much involvement as you have now as chairman
with the resources, but thank you for the response.
Mr. Farr.
Mr. FARR. Thank you, Mr. Chairman.
You indicated in your questioning there or noted the percentage
of increase in the budget, but I think it also fails to note the percentage of increase in responsibility. Can you put that into some
kind of percentage terms?
And I also read that you only have 40 more employees than you
did 20 years ago. So lay out for me a little bit about what the magnitude of the Dodd-Frank responsibility is, and that is what this
whole debate is about. We have enacted a law. It gives you lots of
things to do in these categories in an area that had never been regulated before. So you are going in to do something that nobody
really had a lot of experience with, rule writing, all of that stuff,
with a budget that we keep whacking away at.
It does not seem to me that you can do what you are mandated
to do in law even with the ask the President is making. So could
you put that into some context of what the increase in responsibility is?
Mr. WETJEN. I appreciate the question, Congressman.
Again, I mentioned several before, but we might just key in on
those entities that we directly oversee at the CFTC. Those would
be these intermediaries, such as futures commission merchants,
managed funds, swap dealers, and major swap participants. In
those four key categories alone we have seen an increase of 40 percent in the number of entities now registered with us.
And of course, once an entity registers, it is subject to a host of
responsibilities under our regulations that we at the agency must
oversee and enforce. So I think that is a pretty instructive measurement.
The other, as I said a little bit earlier, the amount of customer
funds now being held by clearinghouses and futures commission
merchants has increased by more than $50 billion, I think the fig-

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ure was. That is additional money that belongs to customers that
has to be managed well and safely kept, and in the event that some
sort of failure, which is something we have seen unfortunately in
the last few years, those funds can be lost or tied up in a bankruptcy proceeding or whatever else for some amount of time, and
we need to do our level best to make sure that does not happen
again.
Mr. FARR. How short of what the President has asked for do you
think the ask is? I mean, you seem from what I have read, and
part of it came out of this New Republic article which was November of last year that really defends, I think, very strongly that Congress has been underfunding its responsibility for your duties.
Mr. WETJEN. So, Congressman, the question is how much
Mr. FARR. Well, I hear you have fewer people now for enforcement than you did in 2002. How can that be? Is that just because
we have not put enough money into enforcement?
Mr. WETJEN. Well, that is probably part of it. Some of it obviously has to do with attrition, but again, with more responsibilities
at the agency, the growth within the Division of Enforcement has
not been as fast as perhaps other divisions within the agency had
to be in light of some of these new responsibilities. So that explains
some of it, too.
But, no, the request, again, before you today I think will get us
to the minimum level of staff that I believe we need to, again, execute on those three core areas: examination, surveillance of the
marketplace, and a good, strong credible enforcement program.
Mr. FARR. My time has expired. Thank you.
Mr. ADERHOLT. Mr. Nunnelee.
Mr. NUNNELEE. Thank you, Mr. Chairman.
Mr. Chairman, thanks for being here.
Justice Oliver Wendell Holmes one day said, I am not near as
concerned where men stand as in what direction he is headed.
(sic) And I like the direction you are headed. I like it when folks
come here and say, We are going to request less money than before. I appreciate that attitude.
But I have been around government long enough to know that
when an agency comes and says, We are going to make do on significantly less money, I need to ask a couple questions.
So my main question is you are not looking to supplant the decrease in funding that you are requesting by any type of increase
or any new user fees, are you?
Mr. WETJEN. Mr. Congressman, I appreciate the question.
The Presidents proposal or request references user fees, and if
that is something that Congress entertains, there would be a lot of
issues to work through, and you know, the CFTC would want to
be part of that process.
My view on the matter at the moment is that, again, even in the
relatively short while that I have been serving as acting chair, I
have seen firsthand the types of effects it has on the agency and
our ability to respond to questions, to respond to petitions from the
marketplace, to try and respond to international regulators who
are asking for us to enhance and improve upon or increase our coordination efforts and harmonization efforts.

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All those things take time and resources and people, and so the
fact that we are falling a little bit short in our ability to do those
types of things, it leaves me in the position where I am basically
open to considering anything to make sure that we, again, have the
people we need to do the job and the technology necessary to leverage that human capital.
Mr. NUNNELEE. We need to talk long and hard before we start
talking about adding new user fees or increasing anything charged.
All right. Let us move on. I understand you are involved in looking at the regulations dealing with high frequency trading. Just explain to me from a laymans point of view what you are hoping to
accomplish and how you want to accomplish that.
Mr. WETJEN. Well, Congressman, the main thing the agency has
done is we put out for comment a concept release that asked a series of questions to the marketplace concerning how do we make
sure these types of firms do not pose unacceptable risks to the marketplaces that they are operating in, and the use of algorithms and
computer technology to increase the speed with which trading occurs.
It creates a certain type of risk that has to be accounted for, and
the exchanges and the participants themselves have a number of
risk controls in place already, and so the basic thrust of the concept
release was asking questions to the marketplace: are the controls
in place now the sorts of controls that are bare minimum necessities to control for that risk?
And then it also asks questions about what other types of controls might we consider, and so the focus is really on risk, and it
is the type of risk that is posed by the fact that the trading activity
happens so fast through the use of computers, and again, it creates
unique sorts of risks and issues for policy that the commission
needs to work through.
Mr. NUNNELEE. In light of the fact that you have not fully implemented all of your rulemaking required under the Dodd-Frank Act,
why would you think it is necessary to move forward in new areas
of regulation?
Mr. WETJEN. Well, I think, again, as it relates to high frequency
trading, where we are in the process is we have put out for comment this concept release, and recently the comment period was extended. I think it might be closed now.
So what we will do now is we will read through what was submitted to us. I am sure there will be a number of discussions that
take place, and depending again on what the input from the marketplace is or was through that process, we will have to make a
judgment about what to do going forward, but I have not prejudged
the concept release or the comment letters that have been filed
under it. So that is where we are in the process at the moment.
Mr. NUNNELEE. All right. Thank you, Mr. Chair.
Mr. ADERHOLT. Mr. Bishop.
Mr. BISHOP. Thank you very much, Mr. Chairman.
And welcome, Mr. Wetjen. As you know, there have been several
entities who have been working for some time with the CFTC on
enforcement with respect to the metals market for aluminum at
the London Metals Exchange. Your predecessor, Chairman Gensler,

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last summer indicated the CFTC has the authority to act in training manipulation related to the London Metals Exchange.
Given the CFTCs role in protecting and preserving the integrity
of commodity markets, are there funding or research issues that
are preventing the commission from exerting its proper authority
or to bring the London Metals Exchange practices in accord with
global commodity exchanges where commodities are traded?
Mr. WETJEN. Mr. Congressman, I thank you for the question.
Whenever the agency and the staff at the CFTC hear anything
from the marketplace about possible manipulative activity, we take
all of it very, very seriously, and we look into it.
If we are resource constrained, obviously that could have some
level of impact on our ability to pursue certain sorts of conduct or
activity that is revealed through some kind of an investigation that
we might do at the agency.
Mr. BISHOP. Is that the case in all cases?
Mr. WETJEN. Well, I cannot speak to any ongoing investigations
specifically, but it does stand to reason, you know, the fewer resources we have, the harder it will be to pursue that in the best
way possible.
Mr. BISHOP. You ultimately would need additional resources in
order to address those concerns?
Mr. WETJEN. It would definitely be helpful, yes.
Mr. BISHOP. Thank you for that forthright answer.
As you may know, last year I shared my concern with Chairman
Gensler regarding the potential international reach of the CFTCs
proposed cross-border rules, particularly as they might impact Europe and Asia. Specifically there was a concern in the industry
with respect to the scope of cross-border applicability, as well as
the fact that both the SEC and the CFTC share some responsibility
for regulating swaps.
Can you give the subcommittee an update on this matter? And
I am particularly interested in where you and the SEC are in
terms of the rulemaking process and whether or not there is a possibility of enacting rules that would be similar, if not the same, so
that the regulated parties will not have to comply with multiple
rules.
Also, can you update us on any discussion with your counterparts
in Asia and Europe regarding this issue and any outcomes?
It is our understanding that the European Union is not expected
to take up any rulemakings until 2016. Just tell me whether or not
that is going to create some heartburn for the U.S. because of the
delay.
Mr. WETJEN. Thank you, Mr. Congressman.
I guess there are two points. The first is our coordination with
the SEC, and then our coordination with Europe. On the former,
as you likely know, the CFTC finalized its cross-border guidance
last summer, and that was the result of a fairly lengthy process
that included a proposal where we solicited comments from the
marketplace. The final guidance was issued last summer, there
was a deliberative process that led to it, and I think that we did
a level job of taking into account the feedback we got through the
comment process.

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So, again, that has been in place now for more than six months.
Meanwhile the SEC continues its effort to implement a cross-border policy, and I can assure you there is a lot of discussion taking
place between the two agencies. In fact, in just the last few weeks
as sponsor of the Global Markets Advisory Committee at the CFTC,
I hosted a meeting on the CFTCs cross-border policy, and we had
staff from the SEC who were present at the meeting and presented
and gave us their views on a host of different topics. So that is just
one example of how the agencies continue to work fairly closely.
Some of this happens outside the public eye, of course, and a lot
of it happens through the staff, but there is a lot of dialogue I can
assure you, especially now, as I said, given the fact that the SEC
still has to do a few things by way of rulemakings to put their policy in place.
Mr. BISHOP. I think my time has just about expired. Thank you.
Mr. ADERHOLT. Mr. Valadao.
Mr. VALADAO. Thank you, Mr. Chair.
And, Chairman, Andrei Kirilenko, former CFTC Chief Economist,
recipient of the CFTC Chairmans Award for Excellence in 2010,
and co-authored the 2010 Flash Crash Report, has recently produced a new paper on financial regulation in his role at the Massachusetts Institute of Technology.
Some recommendations he had for the financial regulators are:
financial regulations should recognize the automation increasingly
higher transaction speeds make it nearly impossible for humans to
provide effective layers of risk management. Regulators need to
change their surveillance and enforcement practices to be more
cyber centric rather than human centric.
My question is your budget requests only a small increase for the
development, modernization and enhancement of technology. However, it requests an increase of 35 percent for new staff. Can you
explain the discrepancy, given these recommendations?
Mr. WETJEN. Thank you, Mr. Congressman.
I go back to the three key areas of our mission that I mentioned
before, and they are, again, surveillance, examinations of our registered entities, and enforcement. And in order to do a sufficient job
in those three key areas, we need the additional staff request
under this budget.
That is not to say we do not need additional investment in technology, and I completely agree that we do. I have not read Mr.
Kirilenkos paper, but I do agree with his thesis, and we have been
trying to use and deploy some of the new funds set aside for technology for new initiatives. One of those new initiatives that is being
considered is trying to collect and analyze order message data.
That is something that some of the other commissioners at the
agency have shown some interest in as well, and that is the sort
of thing that I think would speak to or respond to some of the
issues it sounds like raised in Mr. Kirilenkos paper.
Mr. VALADAO. Thank you.
Mr. ADERHOLT. Ms. DeLauro.
Ms. DELAURO. Good morning.
Mr. ADERHOLT. Good morning.
Ms. DELAURO. Thank you. I am sorry I was not here for your testimony, but I am delighted to have you as a witness this morning.

144
I want to first say very quickly that I was stunned, but pleasantly stunned, to read your forthrightness, your honesty, and the
clarity of both yourself and Commissioner Chilton about underfunding and what that means to your agency.
A couple of very quick yes or no, and then I want to move on to
the question. Are you a regulatory agency?
Mr. WETJEN. Yes.
Ms. DELAURO. Okay. And with that, simply what do you regulate?
Mr. WETJEN. The derivatives markets.
Ms. DELAURO. How much money is involved in that derivatives
market?
Mr. WETJEN. Well, the size, the notional value of the markets
fluctuate, but it is anywhere between four and $500 trillion.
Ms. DELAURO. Four to $500 trillion. A trillion dollars a day my
colleague Mr. Farr talks. More than that.
Now, I am going to get to dollars that you need and the risk to
underfunding that may not come up in this round, but I will get
back to that, but your testimony, CFTC has fallen far, far short of
performance goals for its examinations activities due to a significant lack of resources.
Now, this is a subcommittee that has recently been obsessed
with reducing fraud and error rates in the SNAP Program, which
has one of the lowest error rates of any Federal program at 3.4 percent. I would hope that my colleagues would be equally concerned
with fraud and abuses that go unchecked in the swaps, futures,
and commodity markets.
I might add that as I understand it, you had 82 enforcement actions over the last three years. You brought in more than $1.7 billion in sanctions. This would seem an area where additional funding would yield additional revenue for the government. And we
have provided an appropriations amount at that time of about $600
million.
When you have been forced to prioritize your investigations,
what has been left out? What would you be able to accomplish with
a more robust funding level?
Mr. WETJEN. Congresswoman, I appreciate the question and your
interest in the agency.
Just speaking to, again, one of those three core areas that I had
mentioned, enforcement, as you alluded to in your question, we
have not really grown that division much over the last number of
years, and we are actually at a lower level than we were more than
a few years ago. And so with fewer staff in enforcement, obviously,
it stands to reason there are probably going to be fewer enforcement matters the division can bring.
So we want to have a credible enforcement program, and so we
want to be able to pursue any relevant type of conduct or manipulative conduct that an investigation turns up. And, again, in order
to do that, in order to respond to every referral that comes in in
a meaningful way, in order to respond to referrals from our Division of Market Oversight, which is the division responsible for surveillance, we have to have
Ms. DELAURO. Would you be able to bring in more revenues?

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Mr. WETJEN. It is hard to predict that because it sort of depends
on the nature of the case, but it would stand to reason that the
more matters you bring presumably the more revenues you would
bring in by way of fines, yes.
Ms. DELAURO. To be repetitive, it has been three years, $1.7 billion. What a heck of a return on an investment there.
I also might add that my understanding is that in 2002 you had
enforcement people. The numbers were 154. In 2014, we had 149,
and just very quickly, once again, the difference between what you
were doing in 2002 and what you are doing in 2014, and the dollar
amount that you are dealing with now as opposed to 2002.
Mr. WETJEN. Yes, Congresswoman, that is right. Again, I mentioned the 40 percent increase in the number of registered entities
directly overseen by the agency. I think that is a very good measure of the growth of responsibilities.
I also go back to the increase in the amount of customer funds
that clearinghouses and futures commission merchants have to
keep safe and manage for risk. Both numbers have increased substantially and so all the more reason why we need to keep a close
eye on what is happening in these markets.
Ms. DELAURO. I would just conclude by saying that my own view,
and I think it is evident here, is that strong funding for the CFTC
reduces the deficit in many more ways than a lot of other actions
that we are presuming to take on, and so that we ought to be able
to provide the resources necessary for this regulatory agency to
carry out its mission.
Thank you, Mr. Chairman.
Mr. ADERHOLT. Mr. Yoder.
Mr. YODER. Thank you, Mr. Chairman.
Mr. Chairman, thank you for joining us today. I appreciate your
testimony, and I want to compliment you on your open approach
towards making sure that we have good information, good comment
opportunities for folks to weigh in on some of the important decisions you are making at the CFTC.
I want to echo some of the concerns that Mr. Bishop brought up
regarding cross-border swaps. In fact, our committee last year
passed a bipartisan amendment to support the notion that the SEC
and the CFTC should coordinate on these swaps so that we have
as much certainty and consistency, predictability, and openness in
the process to ensure that the rulemaking is done in a way that
achieves the goal, which is to protect consumers and ensure that
the CFTC can do its proper oversight.
I just want to note that I think the changes you brought forward
as acting chair have been very positive and improved in that regard, and it has been noticed.
I want to ask a little bit of a follow-up from Mr. Bishops question, and the guidance that you put out, I guess, in November, I
know you have put that on hold and are seeking further comment
because of the disarray it has caused in the market.
Can you give us a status report on the comments that you are
seeking with respect to the November changes?
Mr. WETJEN. Thank you, Mr. Congressman, and I appreciate
your kind words.

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The advisory you mentioned from November 14th of last year
was, indeed, put out for comment by the commission at the beginning of the year, and I think there is a little bit of time left in the
comment period.
Once the comment period closes, we need to carefully review
what has been submitted and get a better sense of how exactly the
marketplace thinks that we should resolve the set of circumstances
addressed in the advisory, and there are a number of different
ways we could do that, including sticking with the advisory, but depending, again, on what the comments that come in say, we could
consider a number of different things.
So I can assure you there is openness to considering any number
of different ways to handle this, but I think that with respect to
the guidance from the summer, the cross-border guidance from the
summer, I think that people can perhaps quibble around the edges,
but I think it reflects pretty sound policy and was the result of a
very long, lengthy deliberation process. So I am very interested in
making sure that that stays in place and people can continue working and complying with it.
Mr. YODER. What is the time line on the completion of the November guidance?
Mr. WETJEN. The no action relief currently in place lasts until
September. So the comment period, as I said, I believe closes in another week or so. So, again, presumably we would want to, after
reviewing the comment letters, make some sort of a decision about
what to do before the related no action relief expires in September.
Mr. YODER. Fair enough. We have seen a lot of news about
banks involvement in the commodities markets. I know the Federal Reserve is seeking public comment on this topic. However, the
CFTC has the authority to police those markets for manipulation.
Do you believe the CFTC has enough statutory authority to gather
the necessary information to protect the commodities markets from
fraud and manipulation?
Mr. WETJEN. Yes, I believe so. There are, of course, reporting obligations over the marketplace related to derivatives. The agency
also has special call authority that it can rely upon if it hears of
something and it gets a referral and wants to follow up with additional information. So that is something that we have at our disposal.
We, of course, can share information with other Federal agencies,
and an example of this that does not necessarily relate to all of the
energy markets, but at least with respect to power and electricity,
we just announced the first transfer of data from the CFTC to the
FERC yesterday, and that was done pursuant to a memorandum
of understanding that the two agencies entered into, which we
were directed to do by the Congress several years ago.
So I feel reasonably confident now that we are able to get the information that we need to pursue any enforcement actions if necessary if there is manipulation taking place.
Mr. YODER. Thank you, Mr. Chairman. I yield back.
Mr. ADERHOLT. Mr. Fortenberry.
Mr. FORTENBERRY. Thank you.

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Good morning, Mr. Chairman. I am sorry I did not have the benefit of your earlier testimony so I am playing a little bit of catchup here, but I did review some of it.
Are the derivatives markets broken?
Mr. WETJEN. I do not believe so, no.
Mr. FORTENBERRY. Do they function well?
Mr. WETJEN. I think they function reasonably well. There is a
structural shift taking place on the swap side, as you know, given
the reforms over the last several years, and there is going to be
some adjustment that goes along with that, but I am not hearing
or seeing anything that leads me to believe that there is
brokenness in the markets, no.
Mr. FORTENBERRY. Here is why I asked the question, and I think
you are probably aware of what I am hinting at. When you have
an inverse relationship of what has traditionally been between
hedgers and speculators, when you have unexplained price volatility when there is not a disruption of supply, for instance, the
very purpose of a derivatives market, which is to hedge risk and
decrease volatility and make the market more perfect, actually may
be lending itself to increased volatility and market brokenness, and
that is the point of my question.
The point in the example here, in 2008, the price of oil shot up
to $145 a barrel. Then it rebounded, came back down. By 2011,
there was a run-up of about 20 percent in the price of oil, but gasoline prices went up to their 2008 levels, again, no interruption of
supply.
So this unexplainable price volatility begs the question as to
whether or not speculation in the market itself is undermining the
very purpose of the market to decrease volatility and hedge risk.
Mr. WETJEN. I appreciate the question.
I think I have not studied the data closely. It probably would be
confirmed in most studies that certainly there has been perhaps an
increase in volatility at least during certain periods of time or the
last number of years in the markets. There are a number of possible explanations for that, including the question asked earlier
about the presence of high frequency trading firms.
So the trading velocity and the trading volume has changed a lot,
but I think the real measure of whether the markets are working
or not or the best measure is: Is there sufficient liquidity for those
who really need to do traditional hedging? Is there sufficient liquidity in the marketplace for them to achieve that purpose?
By and large my sense is that in most cases anyway that is
something that is achievable for them.
Mr. FORTENBERRY. Well, I would not disagree with that, but at
what cost given the volatility and what is causing the volatility. Is
it basically underlying structures of supply and demand? Not clearly, and so the market itself maybe a factor, a significant factor in
the increase of volatility, which is very disruptive to free market
economies. In other words, it begs the question of as to whether or
not this is functioning properly.
It is a larger academic question. I recognize that and your dayto-day management of trying to ensure there is not fraud of insider
trading, all the things that you do maybe do not lend itself to deeper reflection on this purpose, but I think it is important because

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the very reason we are talking about giving you more money is because we keep seeing problems here. We do not want any cheating.
We want the free market to function properly, but at the same time
if the fundamental structures are cracked betraying the very purpose of the market, I think that is something we have to look at
and think through.
Mr. WETJEN. Congressman, that is a very thoughtful point and
question, and I agree. I think it would be worthwhile to take a step
back and maybe look at the big picture and perhaps I could follow
up with you after the hearing and figure out a way to do that and
maybe get some additional information for you that could be useful.
So I am happy to follow up with you on that.
Mr. FORTENBERRY. I would appreciate that.
Thank you, Mr. Chairman.
Mr. ADERHOLT. You mentioned in your testimony that various
statistics have been used to measure the increase of CFTCs responsibilities. One thing that is mentioned is the gross notional
value of hundreds of trillions of dollars, which is several times larger than the world economy, but the Bank for International Settlements has published its data that would disagree with that.
I would like to look at some other measurements. You are including one, increase in trading volume; number two, increase in customer funds; and number three, increase in registered entities
under CFTC.
Using your own statistics, number one, the increase in trading
volume for futures is 13 percent. For swaps it is 33 percent. The
increase of customer funds is 27 percent. The increase in registered
entities is 40 percent.
So the highest metric you have given would be 40 percent. Yet
the CFTCs budget since the financial crisis of 2008 has increased
91 percent. Explain to us the request for another 30 percent increase in CFTCs budget.
Mr. WETJEN. Mr. Chair, I appreciate the question.
The way I approached this budget was looking at those different
ways of measuring, but also looking at the mission of the agency
set out under the statute. I analyzed it by focusing on the number
of people we have and then making judgments about the number
of people that I thought we needed to execute on those mission activities, focusing, again, on three key ones for me which are enforcement, surveillance, and examinations.
And I just went through the divisions and looked to see, well,
how many people do we have doing those three key things in examinations? In the Division of Clearing and Risk, it is a very small
number. I think it is around 12 or 13.
In the Division of Swap Dealer and Intermediary Oversight, it is
slightly larger because they have more registered entities under
their purview, but still a pretty small number. In fiscal year 2013,
it looks like it was 48.
And, again, DSIO, that division oversees tens of thousands of entities, either directly or indirectly. Most of those are indirect, but
a substantial number are under the CFTCs direct oversight.
So we do not need enough people to look at every single last one
of those registered entities year after year, but we need enough to
basically keep the entities honest and to do at least a reasonable,

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acceptable level spot check of those registered entities, and again,
based on the number we have today, we are not able to do that.
Mr. ADERHOLT. You mentioned the CFTCs leverages of resources
of self-regulatory structure. The number of regulatory includes
around 800 staff plus CFTCs 647 employees, and that would make
a total of about 1,450 employees to regulate the industry.
Do you think it would be more transparent to acknowledge the
totality of the hard working regulatory staff rather than just
CFTCs own in asking for the increase?
Mr. WETJEN. Well, I think the budget request itself does, indeed,
acknowledge that. There is a reference to the fact that there is a
coordination and cooperation effort with the self-regulatory organizations, and so I can certainly concede that point.
But the types of reviews that the SROs often do is a little bit different than the type of reviews at least focusing on examinations,
the sort of examinations that the CFTC staff would be responsible
for doing. The CFTC staff ultimately are the ones responsible for
providing interpretations about what the regulations actually require, and they look at and do these examinations through a slightly different lens, I would suggest. It is much more risk based. It
is much more policy driven, and so with that type of approach and
combination with the approach taken by the SROs, I think in the
cases where you have both entities involved, both the SRO and the
CFTC, that is how you get the best oversight.
But, again, even though that type of cooperation where we are
doing it qualitatively, different type of review, and we are not doing
it of all the registered entities that the SROs might have direct
oversight over, we still do not have enough people to have that
level of cooperation.
So, again, that is why the request was made at the number it
was requested at, because we need additional staff, additional
FTEs focusing on that examination function, just focusing on the
examination for now. That does not get into enforcement and surveillance.
Mr. ADERHOLT. Mr. Farr.
Mr. FARR. I find that people are always fighting regulation in
politics at whatever level of government you are in, and yet it is
the business sector that comes in and asks for regulations. They
want licensing. They want standards set up. They want certainty,
and certainly financing is of all of them. You know, you want some
predictability that you are not going to have a disaster, that some
unforeseen circumstances are going to occur because that makes it
a lot more risky.
There must be somebody out there in the private sector who
wants you to have more staff and do a better job of providing an
opportunity for transparency because this is what we are really
talking about, is transparency and then where you find anomalies
enforcement.
Who are the people that might be interested in seeing you get
a bigger budget?
Mr. WETJEN. Mr. Congressman, I could identify them. I could
probably give you their phone numbers, too, if you like although I
will not do that here.

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Now, to be sure, that is, in fact, the case. We have tremendous
demands placed on the agency right now, demands for clarifications, petitions for one purpose or another, including relief or including some other action expected or needed from the agency, demands for guidance, demands for interpretation.
So, and I mentioned it a little bit earlier, there are a number of
demands on the international front, and as we know, these are
global markets, and there are other regulators and jurisdictions
who have a say in the oversight of these markets, and there is a
tremendous amount of dialogue that takes place between the other
regulators around the globe. They have demands. We have demands of them.
Let me give you an example. The European Commission right
now is undertaking the number of equivalence determinations, and
these are determinations about whether or not some of our rules
are sufficiently similar to theirs or whether some of the entities
based in the U.S. but operate over in Europe can follow CFTC regulation rather than European regulation. That includes dealers.
That includes clearinghouses.
And so there is a tremendous amount of work and time that gets
put into having those dialogues and trying to work with these other
regulators so that they come out with a good result on their own
equivalency determinations.
Mr. FARR. What U.S. entities or companies want better regulation?
Mr. WETJEN. Well, I think my sense is that most participants in
the derivatives markets think that confidence is built and there is
greater credibility when there is sufficient strong oversight of the
markets. When we saw the failures of the two FCMs several years
back, it was kind of a jarring event, I think, for a lot of the participants in the futures market, in particular, because that was the
failure of a sizable firm. A large number of customer funds were
put at risk and tied up in bankruptcy, and I do not know if it was
a crisis of confidence, but as I said, it had a real jarring effect. We
could sense that at the agency, and it seemed very, very real to me.
So those who are watching that incident very, very closely, I am
sure most of them would agree that we need a properly overseen
and properly regulated FCM community to make sure that people
continue bringing liquidity to these markets that the FCMs intermediate in.
Mr. FARR. Most of your activities you stated are in surveillance,
examinations and enforcement. I think that is similar to what our
intel agencies do. I am just thinking if you were an intelligence
agency before a congressional community and asking for the assets
to do this, I doubt that we would be criticizing you in the sense
that you do not need the money or you do not need to do the work
in order to have the intelligence of our markets, and in this esoteric
area of future swaps and options, we need it more than ever.
So I just think that this committee, we ought to think about this.
This is our responsibility. Do we really want to handicap this agency at a time when we have enacted the law and told them what
to do and then turning around and not allowing them to carry it
out it seems to me very dangerous.
Mr. ADERHOLT. Mr. Nunnelee.

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Mr. NUNNELEE. Thank you, Mr. Chairman.
The CFTC is involved in a rulemaking change that is going to
lower the trigger for transactions from $8 billion to $3 billion. How
many firms will be added at the $3 billion trigger that are not covered with the $8 billion trigger?
Mr. WETJEN. Thank you, Mr. Congressman.
The agency does not know the answer to that right now. The way
the swap dealer rule works is that it set the threshold at $8 billion,
which is to last until October of 2017, and there was a request of
the chairman, Chairman Aderholt, to try and do some of this analysis sooner, which we can and will do, but we will have to analyze
and try and solicit some information from the dealing community
itself to get a better handle on that, and we are happy to do that.
But just as far as how the rule operates, the threshold remains
in place until 2017. I think originally the thinking was that once
we had pretty solid reporting from the SDRs on swap data activity,
that would give us an even better handle on how to determine
what the level of dealing activity was among these different firms
and make a judgment closer to that date, but we can do it sooner
if that is the wishes of the committee.
Mr. NUNNELEE. Do you have a feel for a range of the number of
firms that may be added by this change in comparison to the number that you are currently regulating?
Is it ten percent more, 100 percent more?
Mr. WETJEN. Honestly, Congressman, now we have 99 swap
dealers registered, and I do not have the feel for how many more
it would be. I am sure it would be some because we are aware that
there are other entities that do the sort of dealing activity that
would be encompassed by the swap dealer rule we put in place a
couple of years ago, but I would have to get back to you on a better
approximation.
Mr. NUNNELEE. That is one of the things we will be interested
in, and then as a follow-up, we want to know, okay, how are you
going to regulate an increased number of firms while you are requesting less resources.
Mr. WETJEN. Well, you know, on the request, what we requested
today would be, I think, a substantial increase above what we have
now, but I take your point.
Mr. NUNNELEE. We may be following up with questions for the
record on that. Thank you.
Thank you, Mr. Chairman.
Mr. ADERHOLT. Mr. Bishop. I am sorry.
Mr. BISHOP. Thank you very much.
As you know, Dodd-Frank as a part of the CFTCs expanding enforcement obligations created an authorized Whistleblower Program, and it is my understanding that the Securities and Exchange
Commission has recently received more attention for its Whistleblower Program. However, whistleblowers have been very active at
the CFTC regarding a wide array of fraudulent practices from price
manipulation to Ponzi schemes.
In fact, the number of whistleblower claims filed with the FTC
has jumped from 58 in fiscal year 2012 to 138 to fiscal year 2013.
Can you update us on where the Whistleblower Program is currently with CFTC and what resources are being proposed for next

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year, and what are your plans for promoting its existence, including any awards program?
Mr. WETJEN. Thank you, Congressman.
We do, in fact, have a Whistleblower Program that is relatively
new. There is a sizable budget for it. I would have to get back to
you on the exact number, but as you pointed out, at the SEC we
have seen the successes that can come from this program, and
there are a lot of referrals that can be generated from this type of
program.
So, again, I think it is going to be a nice addition to the program
at the CFTC to try to make sure we are responding to any manipulative or fraudulent activity in the marketplace, but I am happy to
follow up with you on more specific figures.
Mr. BISHOP. As you know, the CFTC is included in the ag. appropriations bill because of its historical connection to the agriculture
markets, but the number and the scope of non-agricultural issues
has dramatically grown at the Commission in recent decades.
But despite the growing importance of the non-agricultural
issues, agricultural issues still remain a critical component of your
work. I am concerned that given the fiscal environment in which
we are operating today and the inevitable budget reductions which
will occur in every agency of the Federal Government, including
yours, the CFTCs management of agriculture markets could possibly get the short end of the stick.
How do we make sure that agriculture does not disproportionately pay for reductions in your budget, combined with the growing
pressure you are under to expand the agencys non-agricultural activities, particularly as a result of Dodd-Frank?
Mr. WETJEN. Thank you, Congressman.
You are right. The ag. markets, in particular, have played a special role in the history of the CFTC and also in the history of the
markets. I think in a lot of ways they developed in that space and
expanded from there, as you said.
We are always trying to be mindful of the special needs or special issues that can materialize in the agricultural asset class, and
we try to pay careful attention to that. Just to give you an example, we have a weekly surveillance meeting at the CFTC, and we
are going to cover a couple of topics tomorrow that actually relate
to agricultural products.
So it continues to be an area of importance, and especially since
the underlying commodities of these derivatives contracts are so
meaningful and important to the everyday citizen. We always need
to make sure we are taking care to understand exactly what is
going on in those markets and watch them very carefully.
Mr. BISHOP. Right. Finally, let me ask you, going back to DoddFrank and farmers, one of the little known goals of the Dodd-Frank
is the facilitation of a more transparent risk management process
for farmers and ranchers. But it would appear that the resulting
transparency has come at a real cost, particularly to the Nations
farmers and ranchers who utilize futures markets for hedging and
are now experiencing dramatically increased risk management
costs.
As part of the CFTCs efforts to expand transparency, a new rule
governing records of commodity interests and related cash forward

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transactions was issued and approved in December of 2012. Under
this rule all communications leading to a futures or swap transactions are required to be recorded, including voice and text message recordings.
Voice recording systems can cost upwards of $50,000, which is
likely cost prohibitive for most small to midsize working farmers
and ranchers. Several major farm organizations have expressed
some concern regarding the rules recording requirements and their
cost effectiveness.
Can you tell us the thinking behind this particular requirement,
and was the CFTC aware of the cost impact that this would have
on farmers and ranchers?
I am always reminded of a cost-benefit analysis that I feel should
always be done when regulations are put in place.
Mr. WETJEN. Congressman, I appreciate the question.
There was a rulemaking on Regulation 1.35, which is the voice
recordkeeping requirement that you mentioned. There was a costbenefit type analysis done under the statute with respect to that
rule, as it is done with every rule.
I think it is fair to say that when crafting that rule, and there
was an attempt to calibrate it in a way that it was focused on the
categories of market participants where you are most likely to see
manipulative or fraudulent activity. I think probably, Mr. Bishop,
you and I would agree farmers do not normally come to mind.
But we have heard some of these concerns raised as well at the
agency, and for that reason, as well as because we are hearing
some concerns about some of our other rulemakings that seem to
impact the end user community, just this week I announced a
roundtable on end user related issues, including 1.35, including the
special entity de minimis threshold for swap dealers, as well as
this seven-part test for volumetric optionality, which is a long way
of saying it is a test to figure out whether or not an instrument
is a trade option or not.
And so we are going to host a roundtable to talk through more
detailed issues related to the rulemaking that you mentioned, and
we will be doing that later this month, actually in early April.
Mr. BISHOP. Is there a likelihood that you might provide a little
relief?
Mr. WETJEN. Well, I think we are very much in fact finding
mode. Again, if I could characterize it this way, and I am sure staff
in the building at the CFTC might have more detail, but right now
it is just noise, and so we need to get to the bottom of it, and that
is the purpose of the roundtable.
Mr. ADERHOLT. Mr. Yoder.
Mr. YODER. Thank you, Mr. Chairman.
On the topic of transparency, you are the CFTCs rep. on the Financial Stability Oversight Council, FSOC, which was created by
Dodd-Frank as one of the many regulations to create certainty and
predictability in the markets and protect consumers, again. It has
come under some criticism for being weak in terms of transparency, in terms of who is being regulated, why they are being
regulated, how those things are arrived at.
And I wonder if you can assure the committee that you will help
do everything you can to increase the transparency on the FSOC

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so that American stakeholders, all of us, can ensure that we know
what is going on and why it is happening.
Mr. WETJEN. Mr. Congressman, I appreciate the question.
I agree transparency is important. I will point out additionally
that under Dodd-Frank there are a number of responsibilities given
to the FSOC, as I am sure you are aware, including certain designations, systemic designations, of certain financial institutions,
and there is a lot of sensitivity around that process for reasons I
am sure you can imagine and are aware of.
And so there has to be some balancing between the need for
transparency, but also the need to make sure that some of the sensitive information that is discussed in the context of these FSOC
meetings is kept close. But I am more than happy to continue talking with you about ways to improve transparency around FSOC
where appropriate.
Mr. YODER. Well, I think anything we can do to ensure that
Americans know why its government does what it does and what
its rationale is and give voices to folks that do not normally have
a voice in the process to ensure that when oversight is occurring,
it is being done consistent with what congressional intent is, with
what Americans want.
I think my colleagues on both sides of the aisle would argue that
we should always err on the side of transparency, absent, you
know, national security questions or other things of classified nature. The idea that the deliberations of the FSOC would be less
transparent or not be fully open to the public, I think, is concerning
to a lot of us, and it weakens the effectiveness of those who would
hope that we do a better job of oversight in the country.
Finally, as you know, the CFTCs inter-affiliate rules do not just
impact bank. They impact end users. They certainly have an effect
on folks all across the country. As market participants work to
come into compliance with new regulations, what will you do to ensure a smooth market transition?
And will you work with market participants to provide relief
when necessary?
And, for example, the inter-affiliate exemption from clearing requirements will soon expire. How can the CFTC ensure that this
does not have unintended consequences or market disruption?
Mr. WETJEN. Well, you mentioned the inter-affiliate clearing exemption for clearing, and there is an actual Commission action that
is outstanding that expires on March 11th, as you mentioned. The
extension of that has been circulated around the commission, and
that will be released today.
As far as orderly transition more generally, we have had to respond at the commission in a way over the last several years to ensure that very same thing that you mentioned, and there has been
no actual relief that has been issued. There has been interpretive
guidance issued and the like and we will continue to do that as
necessary. In fact, we had to do it recently in the run-up to the effectiveness date of our trading mandate, and so some issues were
brought to the Commissions attention regarding certain types of
trades that are commonplace in the market, important for participants to continue doing, but there is not a state of readiness in the

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infrastructure for swaps to continue trading those on a regulated
sub-platform. So we had to provide relief there.
So that is just another example of what we needed to do, and I
hope indicates the continued openness to doing that where necessary.
Mr. YODER. I appreciate it.
Thank you, Mr. Chairman.
Mr. ADERHOLT. Ms. DeLauro.
Ms. DELAURO. Thank you, Mr. Chairman.
The CFTC, unlike most other financial regulators, is dependent
upon an annual appropriation from the Congress, and it has no reserve fund. I am not sure everyone understands this. Quite frankly,
the other four main financial regulators have in some parts some
self-funding mechanisms, and CFTC does not.
When the government shut down last October, the equity markets were still overseen by the Security and Exchange Commission.
Federal Reserve was open for business, and yet futures and most
swap markets were left with essentially no cop on the beat.
What happened or, rather, what activities were halted during the
government shutdown?
And the second part of that is would a fee-based system outside
of the appropriations process add more certainty, if not more resources, to your work?
Mr. WETJEN. Thank you, Congresswoman.
The time of the shutdown was unfortunate. We were only able
to have essential staff at the agency during that time.
Ms. DELAURO. So you had to furlough?
Mr. WETJEN. I suppose it is another way of putting it, you know,
and so essential staff was present. So some of the key function
areas of the agency had folks devoted to that during that time, but
most of the agency, you know, was not in the office during the
shutdown.
So it was a little bit unfortunate, too, in the sense that we are
also overseeing another key implementation date at the time. It
was when the self-registrations became effective. So that created a
number of different issues that had to be dealt with and made it
especially difficult that we had so many staff away.
Certainly I would think a user fee would
Ms. DELAURO. Let me just on the point you just made. What activities were halted during that shutdown?
Mr. WETJEN. Well, I do not know. I would have to go back and
get back to you, Congresswoman, because essential staff was allowed to come in, and so we probably had key people, at least the
division directors, for example, there.
Ms. DELAURO. I would like to, and if you can get back to me on
that, I would like to know what interruptions there were in the
course. You know, something had to give.
Mr. WETJEN. Yes.
Ms. DELAURO. Something had to give.
Mr. WETJEN. There was not typical, normal operation, no.
Ms. DELAURO. Okay. So please let me know what the result of
that was.
Mr. WETJEN. Sure.
Ms. DELAURO. And I am sorry. I interrupted you on the fee.

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Mr. WETJEN. Yes, just on the fee, I mean, obviously that would
be very, very important in terms of certainty, and it would give us
a better ability I would think, too, to plan because you would be
able to predict based on the calibration of the fee or however it is
designed.
Ms. DELAURO. As action tax, what?
Mr. WETJEN. Yes, I think what the Presidents budget recommended was as user fee. So it is something like a transaction
tax, but the details would have to be worked out later.
Ms. DELAURO. Your colleague, Mr. Chilton, said at a Presidents
request, This budget asks a strained and exhausted CFTC staff to
do the impossible with too little. We work hard here. We have been
granted needed regulatory tools to do the job. A magic wand, however, is not among those tools, and we are not magicians. The agency requires basic minimal support to accomplish our newly assigned tasks. Sadly, in this regard, the Presidents budget request
fails.
In your testimony you stated that the CFTC is not able to complete its mission at current funding levels. Is the Presidents request enough for the CFTC to complete its mission?
And then I have a follow-up question.
Mr. WETJEN. I believe this request will put is at a level with respect to FTEs or staff to be able to execute on those three key core
areas that I mentioned, enforcement, surveillance and examinations.
Obviously, with even more resources we can do even more and
do an even better job, I believe, but I think at the request level we
would be on the pathway towards sustainability in terms of what
we need to continue executing the way that I think the American
public needs us to.
Ms. DELAURO. Again, according to Commissioner Chilton, your
limited resources have already led to slow investigations and the
prioritization of enforcement cases. What is your investigations
backlog?
Are cases going uninvestigated?
And are we setting ourselves up for the next MF Global or worse,
another Great Recession, and that is about underfunded priorities?
Can you?
Mr. WETJEN. Yes. On the
Ms. DELAURO. What is the investigations backlog?
Mr. WETJEN. I would have to get back with you on specifics, Congresswoman, but again, just speaking generally, the fewer resources we have means the fewer people we have, which means
that there is just going to be a lessened ability to pursue referrals
that come in from folks on the outside or the Whistleblower Office
that Congressman Bishop mentioned or referrals that come in from
our Division of Market Oversight, which surveils the markets,
leverages technology to do that, but we are not going to be able to
pursue all of those leads, if you will, and do the sort of investigation that we might otherwise like to do if we are constrained.
Ms. DELAURO. Let me, if I can, I was just handed a piece of information, and my colleagues may be aware of this. The CFTC was
unable to file chargesand that was my next question: what cases
are going uninvestigated?unable to file charges against certain

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individuals in the London Whale case because it did not have the
funds to do that.
This is from the head of Enforcement at CFTC in an interview
with the Wall Street Journal last year. So I would also like to know
what cases are going uninvestigated. That would, I think, bear
some light for this committee to know what we are doing.
I happen to believe that the budget is not enough. I heard your
answer to that.
Mr. WETJEN. Well, you and I agree on that. All right. Let me
give you another example. There are two major cases underway
right now. One is the MF Global bankruptcy proceeding as well as
the MF Global enforcement actions, and to do an able job in those
matters we need to have expert witnesses. That is another thing
that has not been discussed, but it is critical to bringing a successful complex case, and again, if we do not have enough resources,
we are not going to have the experts that our litigants need to be
successful in court.
Ms. DELAURO. Well, that leads me to what I had asked before
about are we setting ourselves up for the next MF Global or worse,
another Great Recession, as a result of shortchanging the resources
to this regulatory agency which has been handed an exceptional
amount of increased responsibility and with fewer funds than it
needs in order to be able to carry out that mission.
Could we look at another MF Global?
Mr. WETJEN. It is certainly conceivable. Again, that goes back to
the examinations function. To be confident that we are not going
to see a situation like that again we need regular thorough examinations, not duplicative examinations, because the chairmans point
is certainly right. There are other entities involved in this process,
but just to do the sort of spot checking of the front line examiners,
that is not being done now. It is not.
And I was actually writing this in a conversation earlier this
week. There was a time before, before these increased responsibilities, where you would see more of that, but again, we just do not
have the staff among the examinations team to do that minimal
level of examination.
Ms. DELAURO. If I could just ask you to provide I would like to.
Thank you, Mr. Chairman, for your indulgence.
If you can, what I would like to know from you is at what level
of funding are you able to carry out the regulatory function and
mission that you have been tasked with. And I am not saying, you
know, pie in the sky. I am asking you to let us know what this
agency needs to be able to do its job and to be able to save maybe
another $1.7 billion, help us to decrease the deficit, and just in
terms of carrying out your operations.
Thank you so much.
Mr. ADERHOLT. Mr. Rooney.
Mr. ROONEY. Thank you, Mr. Chairman.
Mr. Wetjen, in a Senate Banking Committee hearing last summer, former Chairman Gensler testified that the CFTC has clear
authority to police the physical and derivative markets for aluminum. He also stated that the London Metals Exchange is operating under a no action letter agreement with the CFTC as a Foreign Board of Trade or FBOT. It is expected that the Foreign Board

158
of Trade will maintain the same quality of market expected by
American consumers and is typically exhibited in domestic exchanges regulated by the CFTC, such as the Chicago Mercantile
Exchange and the International Commodity Exchange.
Do you agree with those statements by your predecessor that the
CFTC has the authority to regulate this FBOT?
Mr. WETJEN. Thank you, Mr. Congressman.
I will have to confirm this to be sure, but I am nearly certain
that the LME has applied to become a Foreign Board of Trade.
That is a relatively new rulemaking that was passed. In fact, it
was one of the first rules I voted on. So it was finalized just a couple of years ago.
But again, back to the overall discussion about resources at the
agency, we are continuing to work through those applications, and
that is another area that I have not focused on as much today during this testimony, but we also need staff to be reviewing these registration applications that are coming in from not on FBOTs, but
other registration categories as well.
Mr. ROONEY. Okay. Well, the second part of the question is less
about manpower and resources as opposed to your opinion on the
matter when it comes to specifically an example. The Metro International Trade Services waiting period for aluminum has grown
from six weeks to 16 months since being purchased by Goldman
Sachs. The company holds 1.5 million tons of aluminum, and this
manmade backlog was created to drive up the commodity premium
for profit, and it has cost American consumers, more than five billion over the last three years.
Do you believe in your opinion that this type of behavior in the
market violates the conditions of the no action letter that I referred
to in the first question?
Mr. WETJEN. Congressman, I have to get back to you because it
would depend in part on the actual terms of the no action relief,
but apart from that, as you alluded to in the earlier part of your
question, we always have manipulation authority over the underlying commodity if it is something that is being used in interstate
commerce. So we would have that authority in any event.
I am not sure, and I can get back to you on this, but I am not
sure exactly what the conditions and terms of the relief LME is operating under are, but again, I also think they have applied to become a Foreign Board of Trade, and there would be a number of
obligations it would have to adhere to as a registered FBOT at the
CFTC.
But I can follow up and give you more details about how the no
action relief they are under now actually operates.
Mr. ROONEY. Thank you, sir.
Thank you, Mr. Chairman. I yield back.
Mr. ADERHOLT. Mr. Farr.
Mr. FARR. Did I hear you right that you oversee 400 trillion?
Mr. WETJEN. Yes. The notional value of the swap market fluctuates globally, but the last I checked I think it is somewhere between four and $500 trillion, yes. That is the outstanding notional
value.
Mr. FARR. And we are arguing over a budget increase of 65 million?

159
Ms. DELAURO. Yes.
Mr. FARR. You know, I think your budget sucks, to put it in the
street language. [Laughter.]
And I am glad this hearing has all been recorded and taken
down because if anything goes wrong, I want people to reflect back
on March 6th, 2014 to the ag. appropriations hearing, just to reflect
on, you know, that we asked you these questions about this responsibility.
I think the Administration is underfunding you. I mean, you got
100 million less than what you asked for last year, and now you
come back in and certainly needed that 100 million and are only
asking for 65 million.
I mean we are just sitting here trying to figure out how much
400 trillion is. Nobody in all of our bright staff back here can figure
it all out. It is a lot of money, and you are not open seven days
a week. So this is more than a trillion a day.
Mr. WETJEN. It is a substantial marketplace, sir. There is no
doubt it is huge.
Mr. FARR. Well, what is the worst case scenario? What happens
if you fail, if somebody gets by your surveillance, examinations or
lack of enforcement?
Mr. WETJEN. Well, I think maybe one way to answer it, Mr. Congressman, would be to just look back over the last six years or so,
and we have seen what happens when you have major participants
in the derivatives marketplace fail, and we have seen several examples of that, and it had a reverberating effect throughout the financial system.
I am not suggesting that the only cause of those failures was the
activities of those firms in the derivatives markets, but it gives you
some sense of how bad things can get if these markets are not
overseen properly. There is just no doubt.
Mr. FARR. Has anybody figured out what that value is, how
many trillions that is?
Mr. WETJEN. I am sorry. Trillions?
Mr. FARR. Of what the market, the negative, does that reach.
Mr. WETJEN. I mean, what did we lose, eight million jobs, as a
result of the financial crisis?
Mr. FARR. Just in this country.
Mr. WETJEN. Yes.
Mr. FARR. I think we are getting the point across. I have been
on this committee a long time, and I have to admit that not many
people in Congress or this country understand what this trading
commission does. You are the only one that is not self-funded, I understand. I mean, all of the others have a user fee.
Mr. WETJEN. Yes.
Mr. FARR. And you collected $1.7 billion in fines.
Mr. WETJEN. Yes, the SEC has a bit of a hybrid system, but yes.
Mr. FARR. And we cannot even give you another 65 million when
you have collected a gazillion times more than you are asking for?
I mean, I think I am just trying to plead with my committee
members and our colleagues that this is really an important responsibility. You know, most of us here in Congress are just ordinary people, and we do not have a lot of background in financial
markets and things like that, and I do not think most of us could

160
discuss intelligently swaps and options and futures, and yet we
have that responsibility in this committee.
And I am just pleading with my colleagues that I do not think
we want to play loosely with your budget, particularly when you
are in a new realm after what we have gone through. You are the
future. You know, we are supposed to fix things that are broken,
and we learned that this was broken and it had a very serious, detrimental effect to the American economy, to the world economy,
and now we are going to try to make sure it does not happen again.
And we areI cannot say that publiclywe are just kind of
being a penny wise, pound foolish right here, and I hope that our
committee will follow your request and fully fund you.
Thank you, Mr. Chairman.
Mr. ADERHOLT. Thank you.
Well, thank you, Mr. Chairman, for your testimony. Of course, I
think good people can disagree on exactly how the funding and dire
need of resources and look at this, but we have taken your testimony into consideration, and we certainly understand that you
have an important responsibility and that what you do is no small
thing, and so we do understand that.
We want to provide the resources that you need, but at the same
time we want to make sure that we are responsible to the taxpayers and find that medium and happy balance between the two.
So, again, we appreciate your work at the Commodity Futures
Trading Commission, you and all of your colleagues, and so we look
forward to working with you on this as we continue through the
hearing process and through the fiscal year 2015.
Thank you.
Mr. WETJEN. Thank you very much, Mr. Chairman. Thank you.
Mr. ADERHOLT. The subcommittee stands adjourned.

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WEDNESDAY, MARCH 26, 2014.

USDA RESEARCH, EDUCATION AND ECONOMICS
WITNESSES
DR. CATHERINE E. WOTEKI, UNDER SECRETARY, RESEARCH, EDUCATION AND ECONOMICS
DR. CHAVONDA JACOBS-YOUNG, ADMINISTRATOR, AGRICULTURAL
RESEARCH SERVICE
DR. SONNY RAMASWAMY, DIRECTOR, NATIONAL INSTITUTE OF FOOD
AND AGRICULTURE
DR. MARY BOHMAN, ADMINISTRATOR, ECONOMIC RESEARCH SERVICE
DR. CYNTHIA CLARK, ADMINISTRATOR, NATIONAL AGRICULTURAL
STATISTICS SERVICE
DR. DONALD K. BICE, ASSOCIATE DIRECTOR, OFFICE OF BUDGET AND
PROGRAM ANALYSIS, DEPARTMENT OF AGRICULTURE

INTRODUCTION

OF

WITNESSES

Mr. ADERHOLT. Well, good morning. The subcommittee will come

to order. Thank you for joining us this morning and to discuss the
USDAs fiscal year 2015 budget request for its research agencies.
As I have mentioned before, the subcommittee is focused on the
themes of ensuring the proper use of funds through oversight, ensuring the appropriate level of regulation to protect producers and
the public, and ensuring funding is targeted to vital programs. We
will be reviewing the budget requests with this in mind this morning.
I would like to welcome to the subcommittee Dr. Cathie Woteki,
the Under Secretary for Research, Education, Economics, and chief
scientist for the U.S. Department of Agriculture. Also joining today
will be Dr. Cynthia Clark, Administrator of the National Agricultural Statistics Service; Dr. Mary Bohman, Administrator of the
Economic Research Service; Dr. Chavonda Jacobs-Young, Administrator of the Agricultural Research Service; Dr. Sonny
Ramaswamy, Director of the National Institute for Food and Agriculture; and Mr. Don Bice, Associate Director of Office of Budget
and Program Analysis. Welcome, everybody.
OPENING STATEMENTMR. ADERHOLT
USDA is proposing a $63 million increase over the fiscal year
2014 enacted level for its research programs. It does not include
the additional $227 million for research that was included in the
Presidents Opportunity, Growth, and Security Initiative. We cannot consider the initiative because it is outside the established
budget cap for fiscal year 2015.
The budget request includes a significant increase of 50sorry,
of $75 million to create three new innovation institutes. We will ex(349)

350
plore this proposal in detail as this was not part of the discussion
of the 2014 farm bill.
There are also many other increases, decreases, consolidations
and transfers in the budget proposal. The hearing today will allow
the subcommittee to thoroughly examine them and ultimately help
to determine whether USDA is effectively administering its programs, its activities, and meeting its broad mandate for agricultural research consistent with congressional intent.
Before I conclude, I do want to recognize Dr. Clark, who recently
announced her retirement from the National Agricultural Statistics
Service. Thank you for sharing your expertise and time with USDA
over the years, and also with the agricultural community.
I also congratulate Dr. Jacobs-Young on her new appointment as
Administrator of the Agricultural Research Service. We look forward to working with you. I enjoyed our visit yesterday when you
came by the office, so thank you for doing that.
I also would like to thank Dr. Bohman for the timely assistance
that your staff has recently provided this subcommittee on research
questions. Your staff knew right where to go to findto help us
find the right answers, so thank you, Dr. Bohman, for that.
And finally, thank you, Dr. Ramaswamy, for your work to ensure
that the National Institute of Food and Agriculture is sharing information with Congress, particularly in those as it relates to agriculture and food research initiatives which help us to make good
funding decisions.
This subcommittee and all of agriculture is fortunate to have all
of you that are sitting at the table this morning as experts, as professionals, as leaders in the ag community serving not only the Department of Agriculture, but also the Nation as a whole, so thank
you for that.
At this point, I would like to recognize our ranking member for
the subcommittee, Mr. Farr of California, and see if he has some
opening remarks.
OPENING STATEMENTMR. FARR
Mr. FARR. Thank you very much, Mr. Chairman, and I echo your
accolades for the fine work that the committee has done. It is nice
to see the diversity here of women before our committee in a Department that has been predominantly, throughout its history, a
very male-oriented Department.
I think this subject matter, I mean, it probably isnt controversial, so it doesnt attract a lot of people to come in, but it isto
me, our investment in research, Americas investment in research,
is probably the distinguishing factor of how America can stay
ahead of the rest of the world in economic development.
I chaired the economic development committee in the California
State Legislature and had a chance meeting with all of the top industrial leaders in the State, and every one of them indicated that
the one thing that the government could do that they couldnt do
alone is the investment in research; also investment in education,
because of all their workforce came out of education. And, frankly,
it wasnt about how much taxes and regulations there were; it was
about how do you also create communities of quality of life that attract an intellectual capital that they need to hire in their compa-

351
nies, and sort of these things that were external were beyond the
companies ability to do on their own. And David Packard was very
instrumental in my life and certainly built a beautiful aquarium in
Monterey, but his interest was alwayseven with that aquarium
was in research and in marine research and applying that research.
So I find that this arm of the U.S. Department of Agriculture is
key to America, and I am going to be asking some questions about
why there isnt more investment, or why is there not an investment
in one thing or another, or why there are cuts, because I think that
if we are going to, in this competitive worldwe are unique, Mr.
Chairman, in that we have a lot of microclimates in this country
that other countries dont have, particularly in the fresh vegetable
area where you just cant grow these crops in other places of the
world or even other places in the United States.
You know, there is a lot of pressure on food safety, food security,
inputs, pesticides, herbicides, sort of the negative things that can
affect the environment and have downstream effect. So, if we are
going to really find alternatives to things that we dont want to
continue to use, and if we are going to find better ways of producing food in a more cost-effective way, we are going to have to
really strongly support our research service, so I appreciate the
committee being here today and having this discussion. Thank you.
Mr. ADERHOLT. Thank you, Mr. Farr.
And, Dr. Woteki, again, welcome to the subcommittee. We will
turn to you for your opening statements. Your full statements, of
course, will be included in the record, so feel free to summarize any
way that you would like, and then we will proceed on with the
questions.
So Dr. Woteki.
OPENING STATEMENTDR. WOTEKI
Dr. WOTEKI. Well, thank you, Chairman Aderholt, and good
morning to you, and to Ranking Member Farr, and to Representative Pingree. It is a real pleasure for my colleagues and me to appear before you to talk about our budget request for fiscal year
2015. And as you have noticed and noted already, we are appearing
before you with a new addition as the Administrator of the Agricultural Research Service. Dr. Chavonda Jacobs-Young testifies for
the first time in this capacity. And I also greatly appreciate your
noting the many contributions that Dr. Clark has made. So we are
looking forward, though, to finding an outstanding replacement for
Dr. Clark.
My colleagues and I have provided quite extensive written testimony for the record. We appreciate your putting that in, and I will
summarize just at a very high level.
In addition to preparing for this hearing, we have been spending
a lot of time in implementing the Agricultural Act of 2014, and our
budget proposal includes additional reporting information for the
National Institute of Food and Agriculture, for the Agricultural Research Service, and also for the Economic Research Service, which
was required by section 7513.
A second report on research accomplishments, 5-year projections
of our research priorities, and also examining potential areas of the

352
duplication with the private sector and other Federal agencies is in
final clearance and will be submitted to you very promptly.
The Presidents fiscal year 2015 budget proposal and the farm
bill provide for new ways of partnering with university scientists,
with educators, and with the private sector. This investment in
science and education is an important contributor to rural economic
growth, to the creation of new industries, and also for keeping U.S.
agricultural productivity high.
The return on the Federal investment in agricultural research is
in the range of 20 to 1, and nearly 1 in 10 jobs in the U.S., about
16 million jobs total, is in the agriculture and food-related sectors.
The farm value of production is estimated to be $400 billion, and
the research investment, as Congressman Farr noted, pays off in
a lot of different ways, in an educated workforce, in patents and
licensing agreements that lead to new agricultural products and
consumer goods, and in the creation of new businesses.
This past year the REE agencies accomplished a lot. ARS entered
into more than 50 new Cooperative Research and Development
Agreements (CRADAs) and continued working in another 250 active CRADAs, helping companies to solve problems through cooperative research. ARS annually files over 100 patent applications and
averages over 400 active licensing agreements.
NASS completed the Census of Agriculture that is providing important information for informed policy decisions, and also program
delivery.
The Economic Research Service informed public and private decisions with 268 new research publications and updates to over 70
different data products.
Work supported by the National Institute on Food and Agriculture at the University of Nebraska has resulted in the reduction
in irrigation water used annually by 114 billion gallons. That is
enough water to supply a city the size of Tucson, Arizona, for a
year.
And to meet the opportunities to grow our scientific workforce,
NIFA also supported the education and training of over 1,100 doctoral and post doctoral students.
So, the total request for the REE agencies is $2.9 billion. The request includes $75 million to establish three new innovation institutes focused on high priorities for research. The institutes are
going to be virtual organizations, meaning no buildings will be
built with these funds, but they will include multiple partners from
academia, from the private sector, and from Federal labs. These
will be public-private partnerships with the intention of leveraging
private investment into them, and NIFA will be administering
them as a competitive program.
The institutes are going to focus on three high-priority areas: pollination and pollinator health; combating the development of pathogens that are resistant to antibiotics; and the third one is going to
focus on building a national network for bioproducts manufacturing
innovation.
We are also committed in the budget to helping sister agencies
in furthering food safety, and there is, within NIFA, a $2.5 million
request to establish a program to provide food safety training and
outreach to owners and operators of small farms, food processors,

353
and fruit and vegetable vendors that are affected by the Food Safety Modernization Act of 2011.
The Presidents 2015 budget request, as you have indicated, also
includes a separate Opportunity, Growth, and Security Initiative,
and within that there is $277 million targeted investments in this
mission area. The initiative includes $197 million for the Agricultural Research Service, and most of that would be dedicated to replacing the Southeast Poultry Disease Research Laboratory in Athens, Georgia, where very critical research on avian influenzas is
conducted. And the initiative also includes $80 million to enhance
NIFAs base formula and competitive programs at Hatch and
Evans-Allen and AFRI.
So, in conclusion, I believe that these initiatives that I have highlighted, as well as the high-priority budget increases and reallocations that are indicated in the agency testimony, are critical to sustaining and enhancing a well-rounded research and education portfolio.
Mr. Chairman, we look forward to working with you as we continue together to support a world-class level of science and to increase the strength of U.S. agriculture. My colleagues and I are
ready to answer any questions you might have.
Mr. ADERHOLT. Okay. Thank you. Thank you, Dr. Woteki.
[The information follows:]

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RESEARCH INFORMATION SECURITY

Mr. ADERHOLT. Let me start out, and I will ask about something
that we heard earlier this year. The inspector general issued a report on the effectiveness of your agencys lockup procedure to ensure the security of sensitive information on commodities.
The inspector general, from my understanding, complimented the
National Agricultural Statistics Service on a swift response, but tell
the subcommittee why it took an audit to bring these issues to
light.
Dr. WOTEKI. Well, Mr. Aderholt, we take our security and our
lockup procedures very, very seriously, and the National Ag Statistics Service has, over the years, improved their approaches towards
security. I would like to ask Dr. Clark to tell you specifically the
steps that they have undertaken in response to this recent audit.
Mr. ADERHOLT. Okay.
Dr. CLARK. We take our security very, very seriously, but you
need to understand that we are working in an environment where
technology is constantly changing, and in order to meet the release
time, which is to the minute, to the second even, we need to be on
top of all of our security procedures.
We did have an incident several years ago where we had a
switch failure, which caused an early media release and since then
we have been doing a number of different things to enhance our
security. We have, most recently, installed a scanning procedure for
people going in to pick up iPhones, or any computers, or any other
equipment. We have cameras at the entrance of our lockup procedure. We have enhanced the procedures in our area where the
media is located to ensure that no release can happen except at the
time when it is scheduled.
The audit asks for us to have an external review on an annual
basis, and we have had several reviews in the last year; and also
to have an internal review committee that is periodically looking
at our security procedures. So this is what we are planning to do,
and we will be keeping on top of it, and we also work with other
statistical agencies. In fact, our procedures are probably the most
secure of all of the agencies.
Mr. ADERHOLT. Now, I know that the inspector generals report
noted that management decisions have reachedbeen reached
some 14 of 17 recommendations?
Dr. CLARK. Yes.
Mr. ADERHOLT. And what is the status of those remaining?
Dr. CLARK. Most of them are all in progress orand completed.
We provided dates at which they would be completed. They would
all be completed by October of 2014, and they are all on the way.
Mr. ADERHOLT. So you feel confident that the problems found by
the inspector general have been addressed at this point?
Dr. CLARK. Yes.
Mr. ADERHOLT. And what would be the result of a leak of this
sensitive data?
Dr. CLARK. Well, it is market-sensitive data, and you have trading that goes on within seconds of the time of the release, and the
mediawe have allowed media to have access to our lockup procedure. They provide reports. We provide data that goes out exactly

406
at the time of release. But if you have a breach of security, then
it affects the markets.
INNOVATION INSTITUTES

Mr. ADERHOLT. Okay. The budget proposes $75 million in new

funding to create three new innovative institutes. I understand this
proposal is based on the recommendation from the Presidents
Council of Advisors on Science and Technology. Just talk a little bit
about the innovation institutes and their connection with the 2014
farm bill. That was not in the farm bill; is that correct?
Dr. WOTEKI. That is correct.
Mr. ADERHOLT. And
Mr. FARR. Food Safety Modernization Act probably.
Mr. ADERHOLT. Were they proposed by the administration, and
have they been debated at Congress at all at this point?
Dr. WOTEKI. Well, I think we are having that discussion right
now as part of our budget request. The innovation institutes were
recommended to the President by his Council of Advisors on
Science and Technology, and they did an in-depth study of the challenges that are facing American agriculture. And we are asking the
question, is our research infrastructure up to those challenges, and
if not, what are the things that we need to be doing differently?
And one of their recommendations was to establish what they
called a new innovation infrastructure that would take us into closer working relationships with the private sector and really focusing
our efforts on some of the big problems and big challenges.
So the innovation institutes are essentially a reflection of that
recommendation to the President. The advisors had recommended
the establishment of six innovation institutes, each one to be funded at the level of $25 million a year for a period of 5 years minimum, and that these innovation institutes should be public-private
partnerships so that they would bethe research agenda would be
determined in close consultation with the private-sector contributors to the innovation institutes.
Mr. ADERHOLT. My time is up.
Mr. Farr.
FOOD SAFETY OUTREACH

Mr. FARR. Thank you very much, Mr. Chair.

I do think we also have to consider that the responsibility for
this agency and our other FDA agencies are newly mandated under
the Food Safety Modernization Act, and one of the questions I have
is that one of the new programs that you mentioned under the extension of the food safety outreach is the Food Safety Outreach
Program, which is a proposal to work with small and medium-sized
farms.
I mean, they think this law is a big challenge to have to meet.
They dont want to be priced out of the market. And I appreciate
the fact that you are going to try to reach out to them to get them
on board, but why just 212 million bucks? That is for the whole
country. That doesnt look like it can reach about anybody. What
do you plan to do with that?
Dr. WOTEKI. Well, we have had ongoing discussions with the
Food and Drug Administration about what is the role that our in-

407
tramural programs can play in helping them establish the evidence
base for their programs, and also, more recently, what is the role
that the extramural programs that are administered by NIFA can
play. Out of those consultations has come this proposal for $2.5
million, and I would like to ask Dr. Ramaswamy to talk with you
in more detail about the content of that.
Mr. FARR. Is this more to deal with the coordination of all these
programs, or it really is to use the money for outreach to small
farmers?
Dr. RAMASWAMY. So, Congressman Farr, thank you so much, and
thank you so much, Mr. Chairman, for having us here this morning. And indeed, you are correct. The intent is to use these funds
that we are requesting to develop educational information in the
form of outreach and extension for the small producers and small
processors, and we will partner with FDA very closely in working
with them, and also with the other agencies within USDA and outside of USDA as well to make sure that we are getting all the information put together to create this information.
Mr. FARR. Well, I am little concerned that it might be just Federal one size fits all. Remember, our States and local governments
have a lot of regulation on farming practices, and Californias
standards are much higher than anything the Federal Government
has, pesticide regulation, what you can and cannot use, setbacks.
So I would hope that you might integrate these on a sort of regional basis, bringing in what the local laws also require.
Dr. RAMASWAMY. Indeed. So what we intend doing is to work
through the Cooperative Extension Services; they are going to be
very much involved in this.
Mr. FARR. Okay.
Dr. RAMASWAMY. And so as you currently pointed out, each State
is a little bit different in terms of the rules and regulations and
laws that they have, and so we would be working through that network and making sure that we are developing the knowledge and
creating the delivery mechanisms as well.
Mr. FARR. I appreciate that.
Dr. Bohman, I was very interested and intrigued but to see the
following statement near the end of your testimony: Quote, ERS
will examine the effects of FSMA across the fresh produce supply
chain, including the guidance issued by FDA as it relates to the development of a risk-based food safety system.
Can you discuss how you are going tois this research or how
are we going to measure FDAs guidance, because there are some
concerns as to the practicality of them.
Dr. BOHMAN. Well, thank you very much.
As you mentioned, the Economic Research Service has a group,
a team that works on food safety issues that is collaborating with
our experts on horticulture markets, and we are coordinating what
we are doing with the USDA food safety group and with the economists at FDA.
I think our strength is that we can bring the realities of the markets and our economic expertise to these food safety issues. So we
have been providing our expertise in terms of the internal rulemaking process, and we are developing research that can look at
what data we would need to understand how the rules are impact-

408
ing the industry, you know, what is working, what is not working,
and start to build that research now as before and during the implementation of the Food Safety Modernization Act.
Mr. FARR. I think it would be very important to share that lessons learned with Congress, because I am afraid that what Members will do is hear from their local growers and then come in here
and try to piecemeal the amendment to the Food Safety Act, and
who knows what politics will be about? So, if you are ahead of the
curve, and you are telling us that we can fix these things or you
can fix them administratively would really be helpful to us.
Dr. BOHMAN. Well, thank you. That isour plan is to make all
our research results public, and we are happy to share our plans
with you as they evolve.
Mr. FARR. My time is up. I will have to ask next round. I want
to go into the horticulture issue.
Mr. ADERHOLT. Mr. Yoder.
Mr. YODER. Thank you, Mr. Chairman. And I appreciate all of
your testimony today.
Dr. Ramaswamy, it is good to see a fellow Kansan or K State
Dr. RAMASWAMY. Yes, sir.
Mr. YODER [continuing]. Background. We all had a rough weekend in St. Louis.
Dr. RAMASWAMY. Indeed. Indeed. Sorry about KU losing that.
Mr. YODER. Sorry about K State losing.
Dr. RAMASWAMY. What a bummer as well.
Mr. YODER. We thought our friends in Kentucky were our
friends, but apparently they took out K State and Wichita State
and
Dr. RAMASWAMY. Indeed.
WHEAT AND BARLEY SCAB INITIATIVE

Mr. YODER [continuing]. So a tough weekend for all of us. But

on to more important issues.
Certainly as a Kansan and someone who grew up on a farm and
had a great appreciation for wheat, Kansas is the greatest wheatproducing State in the country, last year I expressed some concern
over the administrations proposal to eliminate the U.S. Wheat and
Barley Scab Initiative Research Project that funds a substantial
portion of research at K State.
What does the future of this program look like? I believe there
is over 5 million recommended in theI think in the budget. What
does the future look like in terms of the administrations support
for this program, and what can I tell farmers back home regarding
our ability to resolve some of these concerns regarding wheat and
barley scab?
Dr. RAMASWAMY. Sogo ahead.
Dr. WOTEKI. Well, I am happy actually to report to you, Mr.
Yoder, that we have been able to restore funding for the Wheat and
Barley Scab Initiative back to the 2011 levels in the 2014 budget.
Then there really has been some very significant progress that has
been made over the last several years coming out of what has been
an extended research effort. It has focused on breeding, and there
has been an increase in the varieties with resistance for this par-

409
ticular disease in wheat, as well as one barley variety with partial
resistance that was released by ARS in 2011.
There is better information made available to farmers so that
coming out of the surveillance and monitoring activities, so that
when they do apply fungicides, they can do it with a much better
timing and help to head off an outbreak of scab. And that alert system goes directly to the farmer through an email or a text message.
So, we are really pleased that with the 2014 appropriation, that
we have been able to restore these funds.
Mr. YODER. Well, I think that is welcome news, and I appreciate
the message that sends, I think, to Kansas wheat farmers.
In terms of laboratories, what are the ARSs plans for upgrading
regional small grains genotyping laboratories to next-generation
genotype technology?
Dr. WOTEKI. Let me ask Dr. Jacobs-Young if she is prepared to
answer that question.
Dr. JACOBS-YOUNG. Thank you for your question, Mr. Yoder.
So as you can see in the fiscal year 2015 proposal, we have $155
million requested for a facility in Athens. Along with that facility,
there are many other facilities that we have listed on our Capital
Investment Strategy where we need to make significant investments to modernize those facilities. We are definitely supportive of
the small grains facility, and we have been working to look at ways
to use creative mechanisms to invest in those facilities.
I wanted to add on the wheat, we are also looking at the testing
for wheat and trying to bring those up to date. We have a test that
we use in the wheat quality laboratory that is 80 years old, and
I think it is called the falling number, and we feel there is a better way to do that, and so we are also looking at how we canhow
we can bring that into the 20that least 21st century.
FOOD SURVEY

Mr. YODER. Well, I think certainly our efforts to modernize all

this makes a big difference and, I think, speaks to how, with technology, we can create efficiencies and opportunities all across the
country.
I had another question regarding the National Household Food
Acquisition and Purchase Survey. I noticed that that was in the
proposed budget. We have had some issues with other surveys in
the Federal Government being mandatory, being compulsory, and
having penalties and fines. Could you explain how this survey
works; and is it voluntary, mandatory; and who would be being
surveyed; and how it is effectuated?
Dr. BOHMAN. Yes. We are reporting for fiscal year 2015 that we
will be publishing results from this survey
Mr. YODER. Okay.
Dr. BOHMAN [continuing]. Which was conducted in 2012. And it
was a voluntary survey that ERS and the Food and Nutrition Service funded and was carried out by Mathematica Policy Institute.
And the goal is to provide a comprehensive overview of how people
acquire food, not just what they buy in the grocery stores, what
they eat out, what food may be given to them or that they acquire
from a food pantry. And so we did a week-long diary with people
who agreed to do this voluntarily, and we had made sure that we

410
included a large number of low-income respondents so we can look
at questions that are in the public domain about what people eat
who are part of the Supplemental Nutrition Assistance Program.
So we expect to have this data. It is in the final clearing stages
by the end of May, and we will be publishing reports this year and
into next year using that information.
Mr. YODER. Look forward to seeing the results.
Thank you, Mr. Chairman.
Mr. ADERHOLT. Ms. Pingree.
PLANT BREEDING

Ms. PINGREE. Thank you very much, Mr. Chair.

Thank you all for being here today and for all your hard work
on behalf of consumers and farmers.
I am going to start with a question around plant and seed breeding. So, Dr. Woteki, I think probably this is for you, but I am
happy to have anyone talk about it.
In the administrations fiscal year 2015 budget, the USDA proposes a new initiative on genetic improvement in translational
breeding within the Agricultural Research Service. One of the target areas of funding is classical breeding, among other research
areas.
I have a perspective representing a lot of farmers, having a small
farm myself, and like a lot of other farmers, I am personally very
concerned about farmers dwindling options for locally adapted and
publicly available seed varieties and animal breeds. I think that for
agriculture to be successful in the long term, particularly given current trends, our farmers need access to seeds that are adapted to
their local climate, pest conditions, and growing systems.
You also know that in order to be effective, the adaptation process needs to be ongoing, because climatic conditions and pest challenges are also constantly changing, and it seems like they are
changing more rapidly now than they ever have before. So farmers
increasingly need seeds that are bred in their local conditions and
cropping systems. They need, in my opinion, seeds that are classically bred and available for public use.
So just to sort of continue with this thought, there has been extensive dialogue between concerned farmers like myself and the
Administration regarding the implementation of the 2008 Farm
Bill directive to make conventional plant and animal breeding a
priority within the Competitive Research Program. So I appreciate
that the Administration recognizes that this is a concern and has
put in stronger language in the Fiscal Year 2014 request for applications within the Agriculture and Food Research Initiative.
So in spite of these small signs from the Administration and all
the steps that you have taken over the last few years, it is clear,
I think, that more needs to be done not only to ensure our Nations
future food security, but also to ensure that todays farmers, especially some of the young and beginning farmers engaging in the
new opportunities out there for local and organic markets, have access to the highest-quality seeds that are bred for their types of
farming conditions.
We are losing the pipeline of future plant breeders who will be
essential in solving the pest and disease problems that the next

411
generation of farmers face, and, again, especially concerning some
of our climatic uncertainties.
So, my question. I think there are a lot of grave concerns out
there from all kinds of farmers. Can you talk a little bit about the
USDAs efforts to reverse the trend of declining seed varieties, and
how the new ARS initiative that you are proposing will help solve
some of these problems or work towards it?
Dr. WOTEKI. Certainly. And I very much hear and understand
your request. I also want to note that not only your voice, but
many others have been approaching us, making this plea for a
greater emphasis on classical breeding techniques.
In response we have done a couple of things. We held a workshop
last year. We have actually posted the results of that. It was a listening session where there was a really broad spectrum of individuals and organizations that came in and spent a day talking with
us about what they viewed as being the needs across the spectrum
in plant breeding. But there were a lot of voices expressing concern
about the diminishingapparent diminishing interest on the part
of our programs in classical breeding.
We dont feel that that perception is necessarily correct. We feel
that in our programs, both the intramural ones and the extramural
ones, that we are providing opportunities for researchers to put in
proposals for funding in theif they are in the extramural community, in the universities, to be funded by the National Institute of
Food and Agriculture, and that also within the ARS programs, that
there is a wide variety of breeding approaches that are taken from
the classical through to the latest techniques in geneticusing the
new genetic technologies.
So, we have established, though, as a follow-up to this listening
session, a working group within the Department that is focused on
plant breeding. And I have been meeting with that working group
in recent weeks and have asked them to develop a roadmap on
breeding approaches for us to be following.
So we hear the concerns, and we have taken these very positive
steps of the listening sessions, and the internal working group, and
now this roadmap. And in the meantime we also share your concerns about education and training, and the translational breeding
initiative in this budget request is a key step for ARS, the in-house
agency. In addition, NIFA, through the capacity funding that it
provides to the State agricultural experiment stations that is in
turn matched by the States is enormously important for doing exactly that local adaption breeding at the land-grant university that
is so important in the State for farmers within that State. So that
is another mechanism that we have of supporting classical efforts
that are done really to come up with that locally adapted variety.
Mr. ADERHOLT. Okay. Mr. Rooney.
Ms. PINGREE. I am out of time, but I will follow up later. Thank
you.
CITRUS DISEASE

Mr. ROONEY. Thank you, Mr. Chairman. I want to thank my

friend from Kansas forI understand, before I came in, he was
singing the praises of the Florida Gators, and rightfully so, so I appreciate that. It takes a big man to admit greatness.

412
I just want to say, before I get into my questions, if I could, a
couple of thank yous to the members that are sitting on this panel
on behalf of the Florida citrus industry for your efforts in combating citrus greening and canker. Obviously, you all know the situation in my home State and now the situation for the rest of the
country, so hopefully the efforts that you are undertaking right
now will help save our industry.
I am happy to support your work here in Congress. As you know,
the lines of communication with my office are open, with my staff,
specifically the one back here with the orange shirt on. We are always in character.
So I also want to say a special thank you to Dr. Jacobs-Young
for your efforts in hiring a new director in the ARS Fort Pierce lab.
I have been down there numerous times, and I know how important that work is, and I really feel like, based on my visits there,
that they are close to getting what they need. So this transition is
important, so I appreciate all that you have done in getting the
most qualified and best person to continue on, especially at this
pivotal time.
I would like to ask a couple of quick questions, if I could, to Dr.
Ramaswamy about the Emergency Citrus Disease, Research and
Extension Program. As you know, in the 2014 farm bill, the intent
of the legislation is that research projects funded under this authority should be prioritized based on the critical threat of citrus
greening, and to the maximum extent practical, the agencies
should adhere to the recommendations of the Citrus Disease Subcommittee. And the farm bill required the establishment of the Citrus Subcommittee within 45 days.
Can you let us know where we are at with that, and then once
appointed, what is the timeline moving forward? Once recommendations by that committee have been provided, do you consider those proposals simultaneously, or do you wait until after the
proposals have been made?
Dr. RAMASWAMY. Thank you very much, Congressman Rooney,
and thank you for your support as well of the overall agricultural
research and education enterprise as well.
Very specifically, in response to your question, we are indeed in
the process of soliciting nominations. So there is the Citrus Disease
Subcommittee that is part of the NAREEE Advisory Boards specialty crops researchor specialty crops committee. That committee, we have already got six members that are from last year,
and we are in the process ofwe are seeking nominations for three
more. And that request was sent out to the community at large last
week, and our intent is once the nominations come in to the Secretary, that they will be vetted, and then by the 25th of April, we
hope to have that.
By the 1st of May we hopeour staff hopes to have a consultation with that subcommittee and get input on the priorities that
are needed. And then our hope is to incorporate that and then release a request for applicationas a supplement to the Specialty
Crops Research Initiative request for applications that has already
gone out. If so, it will come out as a supplement. If everything falls
in place, we hope it happens on the 15th of May, and then beyond
that, you know, it is a two-step process.

413
We have to make sure that the work that is to be undertaken
is relevant to the industry first. And then once that is done, the
proposal will be recommended for a full-blown scientific merit review. That is the second step. And once that is done, the decision
is going to be made to make the funding available to the individuals that are involved in research and extension.
Mr. ROONEY. Okay. And as you know, the Citrus Disease Research Program received $25 million in mandatory funding for Fiscal Year 2014, and this is good news. For our industry there is a
considerable amount of ongoing research related to citrus greening
that has been supported by this program.
Can you explain how your agency can ensure that the funds are
effectively spent in a relatively short period of time while avoiding
duplicative research? The reason I ask this is because when I was
down in the district, after we got the good news that this was all
going to happen, obviously one of the biggest concerns of the growers is, you know, time is of the essence. It is good that we have
got this funding, but we are kind of at the moment of truth here
with regard to where we go in the future of growing oranges in
Florida. So, if you could help reassure that it is going to be as
quickly as possible.
Dr. RAMASWAMY. You have my word on it, Congressman.
Mr. ROONEY. Okay. Thank you very much.
With that, Mr. Chairman, I yield back.
Mr. ADERHOLT. Mr. Bishop.
SOUTHEAST POULTRY RESEARCH LABORATORY

Mr. BISHOP. Thank you very much.

Let me welcome all of our panelists this morning and thank you
collectively for what you do and what your agencies do to assure
that American agriculture is the highest quality, the safest, the
most abundant and most economical fruit and fiber anywhere in
the world, and it is because of what you do that makes us that
way.
I want to go back to the Southeast Poultry Research Laboratory,
Ms. JacobsDr. Jacobs-Young. Last year, of course, as was indicated earlier, you proposed to invest $155 million in the new Southeast Poultry Research Laboratory in Athens, which was the Departments number one priority for the agency last year.
As you may know, I am the cochair of the Congressional Chicken
Caucus. Georgia is the number one producer and exporter of poultry products in the Nation, and, of course, the chicken industry as
a whole is an integral part of our national economy. And according
to the Chicken Council and the U.S. Poultry and Egg Association,
the poultry industry directly and indirectly provided over a million
jobs, $47 billion in wages, and $197.5 billion in economic activity,
and $17.2 billion in government revenue.
The construction of the new lab is critical, because the lab provides solutions to national and international exotic, emerging, and
endemic poultry disease problems that impact poultry as well as
human health. This year you put the research lab into Opportunity, Growth and Security Initiative, OGS, for a total of $197
million, which included five additional projects in addition to the
SEPRL.

414
What is the current status of the Southeastern Poultry Lab, how
much was obligated for the lab in the current fiscal year 2014, and
can you share with us your thinking behind the OGS Initiative?
And the final part of that question is in the event that Congress
should not choose to fund the OGS Initiative, what will happen to
the projects that were included in that OGS Initiative, particularly
the research lab in Athens?
Dr. JACOBS-YOUNG. So, Congressman Bishop, thank you for that
question, and you are absolutely correct. The poultry lab was our
number one priority last fiscal year, and it is our number one priority this fiscal year. And we did not receive funding to begin the
project, and so there was no money obligated to modernize that facility.
SEPRL is 33 years old. It has been built with a technology that
was very innovative at that time. It is no longer innovative. SEPRL
is separated into many different buildings, so the chickens are
housed in one building, and we do the laboratory work in another.
And so we have duplicative systems to keep the avian influenzas,
the BS3BSL3 laboratories for its containment, so it is very important. We can do energy conservation at the least if we were to
consolidate all of our efforts into one building.
There is also a desire to consolidate the Avian Disease and Oncology Laboratory from Michigan into that facility, so we will fortify our work in this very important area and also build critical
mass.
We only need to look at the news to see how avian influenza has
impacted the global economy, and our scientists have traveled to
help our sister countries be able to deal with this very significant
issue. If we dont have this modernized facility, and we are one of
the worlds largest producers of poultry, then I amI think we lose
a step in our ability to be able to respond to issues that could be
significant, significant to our industry.
Dr. WOTEKI. I might note also, Mr. Bishop, that this laboratory
was indicated as being the highest priority for replacement within
the ARS infrastructure. In the report that Congress requested that
we develop 2 years ago assessing the research infrastructure and
providing a capital investment plan for improving that infrastructure, our assessment is to maintain and improve our laboratory infrastructure within ARS, we will need approximately $150 million
a year. And this particular laboratory, because it is so critical in
research on preventing avian influenzas, in understanding them so
that we can develop countermeasures for them, because it requires
containment to bothto protect our flocks as well as the people
that are working with these infectious viruses, that thisthis is
our highest priority.
We put it in the new initiative that the President has incalled
the OGSI because the budget proposal that we brought forward is
within the agreement levels, for 2014 and 2015. This high-priority
additional research infrastructure and research projects are being
highlighted in the budget because, with these investments, we can
do more, and we can do it better, and we can do it safely within
this kind of new laboratory.

415
So the whole intent in bringing forward the OGSI is to also demonstrate that for this investment, for agricultures future, you are
going to get a return.
Mr. ADERHOLT. Mr. Valadao.
Mr. VALADAO. Thank you, Mr. Chair.
Doctorand if I pronounce this incorrect, I apologizeWoteki?
Dr. WOTEKI. Exactly right.
FOUNDATION FOR FOOD AND AGRICULTURE RESEARCH

Mr. VALADAO. Perfect.

The farm bill created the Foundation for Food and Agriculture
Research that will match private and nonprofit sectors with public
funds. Have you outlined your research priorities for this project
yet?
Dr. WOTEKI. Well, we were really pleased, Congressman, that the
Foundation for Food and Agriculture Research was authorized in
the farm bill because it provides us with a new way of working
with partners outside the Federal Government and outside the historic partnership that we have with the land-grant universities.
The legislation itself has a lot of attributes that are very similar
to the foundation for the National Institutes of Health, and also a
foundation for the Food and Drug Administration, and a number
of other similar types of foundations that have been established in
recent years. So we have taken the opportunity to meet with the
executive directors and the general counsels of those foundations to
learn more about how they operate and also to get some advice
from them about how to go about establishing this new entity.
Mr. VALADAO. I am sorry, the priorities, is what I was getting at.
Just any idea where the research is going to bethe money is
going to be spent on what type of research?
Dr. WOTEKI. Well, that is actually going to be coming from the
external world.
Mr. VALADAO. Okay.
Dr. WOTEKI. But I think the guideposts are established in the
legislation saying that this is work that is supposed to complement
the already funded programs that we have.
You know, the ideas are going to be coming from external. They
are going to be coming from companies, they are going to be coming
from organizations, and they are going to be coming to the foundation and saying, we would like to partner with you and with the
Federal partners in USDA in this project, and then the board of directors is going to be deciding whether they are going to take this
on or not.
U.S. AGRICULTURE PRODUCTIVITY

Mr. VALADAO. Okay. You mention in your testimony that the

U.S. agriculture productivity is now growing more slowly than both
China and Brazil, and that you believe it is due to the amount of
money both these countries spend on research.
Do you think that our overburdened regulation such as rules
treating milk spills like oil spills, obviously the release of personal
information of some of the farmers that happened not too long ago,
or the changing of the definition of waters of the U.S. without
going through Congress were also to blame? Or even things as sim-

416
ple as the marketplace going towards a more organic-type farm
where production is obviously less per acre or per cow. Or whatever
type of product. There is a difference in production, but what do
you attribute this more to than anything?
Dr. WOTEKI. Yeah. I think that the increase in agricultural productivity that I am referring to is being measured before the marketplace in which the regulation that you are referring to would be
implemented. The kind of investment that is made in agricultural
science is leading the farmers to new ways, new seeds, new ways
of production that are increasing yield per acre, which is the way
really that we are measuring that kind of agricultural productivity.
RESEARCH INFORMATION

Mr. VALADAO. Through science, we have seen many breakthroughs in agriculture that improve crop yields, dairy productivity, and feed-to-grain ratios. An ARS initiative outlined in your
budget directs 26 million to focus on crop and livestock genetic improvements. However, despite our success moving forward, many
still fight the outcomes of the very research to improve feed efficiency, resist pesticides, or weed growth, to name a few.
What ideas would you have to disseminate the information to the
public so that the American people can continue to trust our farmers and ranchers to deliver safe and healthy product?
Dr. WOTEKI. Well, I think everybody here with me, the administrators of our agencies, agree with the sentiment in your question
that we need better science education in the U.S., and we also need
a better parta bigger part of our curriculum devoted to providing
information both through school curricula and through more informal routes of education about where your food comes from.
Mr. VALADAO. Well, one of the things that I see, because I am
a dairy farmer myself, and I do farm a little bit of row crops as
well, we see a lot of product come out onto the marketplace, and
we struggle to get either released or approved by whatever agency
would have to do so. And then once it is approved, then you see
some of the agencies even come out and not be as supportive publicly as the farmers would appreciate or ask the agencies to be so.
I mean, genetics on cows, obviously that is probably an easy one
because you breed just like you do any other animal; you look for
superior traits in an animal, and you breed the animal alongside
of that. But when it comes in to row crops, if you are looking for
certain types of crops to grow that are more drought tolerant,
whatever it may be, we do struggle as a farmer getting our word
out, and it would be helpful, I guess, if the agencies would help a
little bit with the information on how safe these products are and
how the consumer shouldnt be concerned and be able to purchase
the product. So thank you.
Dr. WOTEKI. Yeah. Well, we also understand that sentiment. We
had an opportunity yesterdayit was the 100th anniversary of
Norman Borlaugs birthto hold a symposium in his honor yesterday afternoon. We also participated in the ceremony with the unveiling of his statue in the Rotunda. Mr. Latham was one of the
speakers at the program.
But in the afternoon symposium, we had a number of students,
high school students, college students, who were speaking, and

417
they actually were addressing this question as well about how do
we provide more information to the public so that there will be that
level of trust in their food, and where it comes from, and in the
safety of that food.
Mr. VALADAO. Thank you, Mr. Chairman.
Dr. WOTEKI. And they very much were emphasizing the importance of it is for everybody who is involved in agriculture to be conveying that message.
Mr. ADERHOLT. We need to go on with Mr. Fortenberry.
FARM WORKER WAGES

Mr. FORTENBERRY. Thank you, Mr. Chairman.

Good morning, everyone. Good afternoon.
I want to start right away into a question regarding what is
called the adverse effect wage rate. I dont know what adverse effect means, but, nonetheless, it is adversely affectingly us in Nebraska. The adverse effect wage rate is $13.41, the highest in the
country. The reason this is a difficultyand I will give you a story.
Two small farmers came to see me recently. They are specialty
crop farmers, and they use the H-2A visa program for help. They
are trying to do this legally, in the right way, and, yet, they are
being effectively penalized by this peculiar determination by the
Department that the adverse effect wage rate is $13.41.
Now, right next door in Iowa it is $12.22. Next door in Minnesota
it is $11.49. In Colorado, it is $10.89. In California, it is $11. That
means that they cannot compete based upon an artificial statistic
that is coming out of the Department in conjunction with the Department of Labor.
So I want to know what is the methodology for this. I want you
to know the impacts that this is having. I would like to see this
reexamined as quickly as possible because this is not a matter of
taking months and months to unpack something that is very deep
in the Department.
It is affecting farmers on the ground right now who are trying
to do exactly what the Department is asking them to do by developing traditional means of production, creating local food markets,
entering into a field of, again, agriculture that has diminished over
the years, but now is reemerging. That is exactly what we have
been trying to do in agriculture to augment the ag family.
But it seems to me that we are artificially penalizing them by
this very high wage rate and creating an unlevel playing field for
them. I dont know. I surmise that having North Dakota at the
same rate has to do with something that is related to oil field worker salaries.
So that has created an artificial demand in the northern part of
this, again, artificial grouping of states, an artificial demand for
labor that is completely inconsistent with what the reality is on the
ground in Nebraska and in the surrounding states. I mean, even
in Oklahoma it is a little over $10.
So I would like this addressed, please, as to what this is, how
it is determined, how we fix this so that it is more fair, but quickly.
Because we are undermining one of the Departments goals here by
a statistic that is generated through some process that is unfamiliar to me.

418
Dr. WOTEKI. Well, I had not heard about this particular statistic
until very recently. It is derived from a survey that the National
Agricultural Statistics Service does called the Farm Labor Survey.
And Dr. Clark could give you a brief overview of the methodology. But, also, if you would like a more in-depth consultation, we
would be happy to provide that.
Mr. FORTENBERRY. Well, I would like it fixed. I mean, that is the
reality. I dont think this is fair. How we are grouped all the way
with, again, oil field workers in Nebraska whowhy is this happening?
Again, it is inconsistent with the Departments goals to promote
this form of agriculture. And you are penalizing farmers, again,
who are trying to do this the right way by using labor through a
legal program, and I think it is fundamentally unfair.
Dr. WOTEKI. As I said, sir, we would be happy to provide you
with information about the methodology. We understand your concerns.
[The information follows:]
METHODOLOGY

OF

FARM LABOR SURVEY

NATIONAL AGRICULTURAL STATISTICS SERVICE (NASS)

The Department of Labor (DOL) is responsible for determining the adverse effect
wage rates. In order to determine these rates, DOL has a reimbursable agreement
with the National Agricultural Statistics Service (NASS). Under the agreement
NASS collects data on the number of hired farm workers, average hours worked,
and wage rates based on DOL specifications.
The target population for the Farm Labor Survey includes U.S. farms with sales
of $1,000 or more. The survey uses a combined sample size of about 12,000 farms.
Survey data is collected for the week in which the 12th of each month occurs in January, April, July, and October. Data is collected through computer-assisted telephone interviews. Personal interviews are reserved for special classes of non-respondents, some large operators, and other special cases.

Mr. FORTENBERRY. Okay. I am questioning the methodology.

Dr. WOTEKI. And wed be happy to
Mr. FORTENBERRY. This is a time I have right now.
Dr. WOTEKI. We would be happy to talk it through with you.
Dr. CLARK. I could give you a few details.
The adverse effect wage rate is equal to the highest of three indicators: The prevailing wage rate, the minimum wage rate, and the
annual weighted average hourly rate for field and livestock workers
that is published by USDA. This is a Department of Labor regulation, and it is for the H2A.
NASS conducts a semiannual survey that provides data annually
at the request of the Department of Labor. This is funded by the
Department of Labor. And that is the survey that you are referring
to.
And, generally speaking, it might be the highest of those three
wage rates; so, it would be used in calculating the adverse effect
wage rate.
Mr. FORTENBERRY. What is the minimum wage in California?
Dr. CLARK. I am not sure I could tell you that.
Mr. FARR. $10. !
Mr. FORTENBERRY. That is about 212 lower than where I am. So
you understand the point here?
Dr. CLARK. Yes.

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Mr. FORTENBERRY. We have taken some sort of statistical model
and applied it in realtime that is penalizing farmers who are trying
to do this the right way and are acting consistently with the intentions of farm programs in the Department.
But I think this has to be reviewed, again, notwith all due respect, Madam Secretary, not in my office with me, but I would like
this reviewed now back in the Department to demonstrateor at
least have it reconsideredhow this is inconsistent with the reality
of what wage rates are in Nebraska.
Dr. CLARK. We can address the survey. But, as I mentioned, it
is notit is done as a reimbursable survey at the request of the
Department of Labor.
So we are affected by the funding that is provided by the Department of Labor to design a survey that has the quality that you are
seeking.
We can have a discussion of that, but it has to be in conjunction
with the Department of Labor that is funding this survey.
Mr. FORTENBERRY. Okay. That is still not clear to me, what you
just said. Is it the Department of Labors or the Department of Agricultures responsibility?
Dr. CLARK. We are collecting the data. We are doing it to the
specifications that the Department of Labor is providing us and the
budget they are providing us. And so, if the data is not at the
Mr. FORTENBERRY. So you have the input data. You have responsibility for the input of data to determine the outcome that the Department of Labor is using in their surveyor as part of their report?
Dr. CLARK. We are doing the survey in conjunction with them
under their specifications.
Mr. FORTENBERRY. Okay. Fine.
We have got a problem here. Okay? Who is going to help me?
Dr. WOTEKI. Mr. Fortenberry, we will certainly look into it, and
I will be reporting back to you.
[The information follows:]
DETERMINING

AND IMPLEMENTING THE

ADVERSE EFFECT WAGE RATE

NATIONAL AGRICULTURAL STATISTICS SERVICE (NASS)

The Department of Labor (DOL) is responsible for determining the adverse effect
wage rates. DOL has a reimbursable agreement with NASS to collect data for the
Farm Labor Survey based on DOL specifications. DOLs current H-2A regulations
state that the Adverse Effect Wage Rate (AEWR) shall be equal to the highest of
the following three indicators: (1) The Prevailing Wage Rate, (2) The Minimum
Wage Rate, or (3) The annual weighted average hourly wage rate for field and livestock workers (combined) for the region as published by USDA based on its quarterly Farm Labor wage survey.

Mr. FORTENBERRY. Very quickly, please.

Dr. WOTEKI. Very quickly.
Mr. ADERHOLT. Mr. Farr, the Ranking Member, would like to say
something.
Mr. FARR. I just happened to get about 3,000 guest workers over
the border for these programs and you have to really go through
three departments, first of all, the Department of Labor, USDA,
and State Department. You might want to bring all three of those
departments into your office and see if you can clean it up.
Mr. FORTENBERRY. Thank you.

420
Mr. ADERHOLT. At this time I would like to recognize Mr.
Latham. But before I do, there has been a request for him to sing
the Iowa Corn Song.
ANTI-MICROBIAL RESISTANCE

Mr. LATHAM. We did that yesterday in Statuary Hall. Thank you

very much, Mr. Chairman. And later in private I will be glad to
do that. But welcome.
And, first of all, I am very pleased in the budget that you are
not taking money out of the formula funding for places like Iowa
State. And I know you are cheering for the Cyclones in the tournament this week, being a former dean there.
But I was very pleased, also, in your testimony you mentioned
that a one-dimensional approach that targets meat is inadequate
to mitigate the problem of antimicrobial resistance. It is common
and popular to blame the resistance solely on livestock production,
even though the issue, as we understand it today, is far more complex and nuanced.
Unfortunately, some Federal agencies, such as the Centers for
Disease Control and Prevention, sometimes join in that chorus, and
some report on resistance threats target livestock production, but
make no mention of the overprescription and misuse of antibiotics
by humans.
I am curious. How much do you engage with the CDC and other
Federal agencies on the issue? What research is USDA conducting
on the issue? What has research shown? And can you assure us,
I guess, that USDA talks to other agencies to get a more balanced
approach as far as what they are saying to the public?
Dr. WOTEKI. Well, Mr. Latham, we do work very closely with the
Centers for Disease Control, with the Center for Veterinary Medicine at the Food and Drug Administration and, also, with the National Institutes of Health in a three-pronged approach towards
antimicrobial resistance.
We have a role in surveillance andwith APHIS and ARS, both,
involved in what is called the NARMS system, the National Antimicrobial Resistance Monitoring System. And it is focused on three
pathogens: E. coli O157:H7, salmonella and Campylobacter.
Our research programs are both conducted by ARS, and NIFA
also sponsors research at universities across the country, landgrant universities like Iowa State, and that research program has
two focuses.
One is identifying alternatives to the use of antibiotics in livestock rearing, and, secondly, on just fundamental understanding of
the ecology of pathogens in livestock-rearing operations, how these
resistance genes exist in the environment and are transmitted from
the environment to livestock and then through to the consumer.
So that research program has that fundamental emphasis, but,
also, the real practical thing of, What can we be doing to reduce
the presence of these organisms in livestock rearing? And that is
where the third prong comes in, and that is outreach and education.
So what we find from these research programs goes through to
the extension programs, goes through the veterinary medical edu-

421
cation and animal science curricula. So it is a three-pronged approach.
And we are active participants with the other Federal agencies
in a task force that is focused on antimicrobial resistance. We work
with them under the plan that is public, out of this task force, and
updated every few years to reflect what we have learned and new
directions that we are heading in.
PORCINE DISEASE

Mr. LATHAM. Do you evera lot of producers are obviously very

concerned that the perception out there is that, by eating meat or
whatever, that somehow they are losing resistance. I see I am very
short on time here. I talked too much about Iowa State.
But I did want to know what you are doing about the PED virus
and that situation. It is a huge issue, obviously, with the devastationdeath of up to 5 million pigs so far and what is going on.
Dr. WOTEKI. Well, we share your concerns about the Porcine Epidemic Diarrhea (PED) virus. ARS has had a really active program
of research. And I think Dr. Jacobs-Young could fill you on in that.
Dr. JACOBS-YOUNG. So, Congressman Latham, I am sure you are
aware that there is no current effective vaccine for PED. So we are
working in our animal protection work in ARS to help develop a
vaccine for PED.
One of the things that we have recognized is that it is transferred from fecal to oral. That is how it is transferred.
So what we have learned early on is just management practices
can also help mitigate some of the spread of the PED. That is
washing hands, washing boots, keeping populations separated.
It has the worst impact on pigs from 0 to 3 weeks old. So that
is where it can be really devastating. So how can we impart some
immunity in some of our older hogs.
And so we are new on this activity. 2013, I believe, is when it
first really reared its head. And so we are making some progress
on that.
And our work at the National Animal Disease Center (NADC),
which I am sure you are very familiar with; over at Clay Center;
and here in Beltsville, Marylandbetween those three centers, we
will get it figured out.
Mr. LATHAM. Thank you very much.
RESEARCH INFORMATION SECURITY

Mr. ADERHOLT. Thank you.

Interesting article in The New York Times last month about the
espionage. And, of course, it reports on the growing efforts to steal
feed technology by foreign nationals. Obviously hurts American
producers, companies, and researchers.
Dr. Woteki, I will address to you. I know the Department of Agriculture is aware of the seriousness of this problem, no doubt.
Can you walk us through some of the things that the Department is doing to protect the secretive and sensitive research information.
Dr. WOTEKI. Most certainly, Mr. Aderholt.
In our research programs, there are really threethree pillars to
them. And one is that, to the fullest extent we possibly can, we

422
want to share our results. And we have this ethic of sharing the
research through publication and journals and, more recently, by
providing data publicly online.
But the other two pillars are we also respect the privacy issues.
So when we enter into research agreements with companies or
when the statistical agencies obtain data from farmers, that protection of privacy is very important.
And then the third pillar is the protection of intellectual property
where, when we, again, enter into agreements with companies,
with sharing of data, we also sign confidentiality agreements with
them and we honor those confidentiality agreements.
In that context, the events of intellectual property theft that you
were referring to were ones that we found very deeply troubling.
We have in the Agricultural Research Service undertaken a review
of our procedures that we have in place to make sure that, first of
all, everybody is current on their training and has a full understanding of what their roles and responsibilities are and, secondly,
to do the kind of internal audit of the way that we are operating
to determine, you know, if we are meeting our own standards.
So Dr. Jacobs-Young is new in this job, but she is taking these
aspects of protection of intellectual property very seriously.
Mr. ADERHOLT. What protocols are in place to ensure that foreign
nationals who work for the Departments research agency are not
engaged in espionage?
Dr. WOTEKI. It is very difficult to assure, as you have posed this
question, that someone is not engaged in espionage.
What we do do is to make sure that personnel are thoroughly
vetted before they are hired into critical positions and, when they
are hired, that they are properly trained and understand what our
rules and requirements are.
SOUTHEAST POULTRY RESEARCH LABORATORY

Mr. ADERHOLT. Okay. Let me switch over to something Mr.

Bishop had inquired about, about the Presidents Opportunity,
Growth, and Security Initiative for the design and build of the
poultry science lab in Athens.
Of course, as I mentioned, while we cannot consider the request
this year because it exceeds the budget cap for fiscal year 2015, the
subcommittee recognizes the need to invest in infrastructure for agricultural research.
What are we looking at as far as the length of time to design and
build the facility?
Dr. WOTEKI. I dont have a firm timetable immediately on hand.
I am looking to Dr. Jacobs-Young.
Do you know the timetable?
Dr. JACOBS-YOUNG. From design to finish, we are talking 3 to 4
years.
Mr. ADERHOLT. Okay. Do you anticipate costs will rise and additional appropriations are going to be needed in the future? Whoever.
Dr. JACOBS-YOUNG. Cost of inflation. So the cost of inflation is
the only thing that I can see from this point. As technology
changeswe really cant predict where technology is going to go.

423
But I assure you we will do our best to stay within the confines
of the budget.
Dr. WOTEKI. The one thing that we do know, sir, is that the
longer that we delay in beginning this construction, the greater the
cost is going to be.
SPECIALTY CROPS

Mr. ADERHOLT. Sure.

What is ARSs strategy for future investments, such as what is
needed for specialty crops?
Dr. WOTEKI. With respect to infrastructure, sir?
Mr. ADERHOLT. No. Specialty crops. Well, what is ARSs strategy
for future investments when it is needed? I know Mr. Farr has
noted this need for years.
Dr. WOTEKI. Well, we have asked our external advisory committee, the NAREEE board, to do a review of our portfolio of research.
One of the recommendations that the Presidents Council of Advisors on Science and Technology madeor one of the inferences, actually, in their report was that the balance in our research portfolio
between the major crops and the specialty crops was not appropriate.
So we have asked NAREEE Board to provide us with some advice, to do a really thorough review of that balance within the portfolio.
We do think that the specialty crops area is one in which, if the
budget situation turns around, that there is a great opportunity for
increased investment that will be very beneficial for American
farmers.
So we are looking to come back to you in a year with a report
from our advisory committee about that balance and some recommendations about future directions.
Mr. ADERHOLT. Okay. Mr. Farr.
FLORICULTURE

Mr. FARR. Mr. Chairman, thank you for asking that question. I
will just follow up quickly.
The Secretary was in here suggesting that the unfunded balancethe unspent balance every year of the USDA ought to be
rolled over into a capital outlay fund and use that fund for funding
the projects that you have prioritized.
I appreciatewhat the committee asked them to do is to take a
look at what the Defense Department does in doing their capital
outlay for all the different services. They have a thing called the
FYDP, which is a 5-year list, and you get on that based on, you
know, priority needs.
So the servicesyou dont end up just building all Air Force or
all Army or whatever it is and they are all on merit and we never
have any earmarks. And so it makes the process very fair. And
that is what you have done, and I appreciate that.
And now we have to find the money to pay for it. And so that
is what the Secretary suggested, that we create a capital outlay
fund, because Congress has a hard time appropriating that money

424
now that weyou know, we have to rob from Peter to pay Paul and
nobody wants to give it up.
There are no Peters around. Nobody wants to rob from Peter
anymore. Lots of Pauls, but no Peters.
But, anyway, I want to ask something about the bumpwell,
first of all, the floriculture issue. I have a lot of flower and nursery
production in my district, and I was really surprised to see that
your budget cuts money from that floriculture nursery research.
That is a research program that is well supported by the industry, leverages a lot of industry funds. When there were earmarks,
we put them in there. Congress has supported it.
I am surprised why you would cut almost three-quarters of a million dollars out of the program toward administration priorities.
Why do you pick on this program?
Dr. WOTEKI. Well, each year, Congressman, we go through a
prioritizing of projects. I think we have talked in past hearings
about the cycles of program reviews that we go through to identify
what
Mr. FARR. Yeah. But why this one? Do you have any specifics?
Dr. WOTEKI. Well, these are judgments of what are lower priority
programs. Sometimes those judgments are also based on an assessment ofhas the research program largely met its goals.
So for each cycle in our budget, you are going to see this request
for appropriation going towards a higher priority and a retiring of
areas that are deemed to be lower priorities.
Mr. FARR. In prioritizing that, do you also look at industry match
and industry involvement?
Dr. WOTEKI. That is certainly part of the assessment. Yes.
Mr. FARR. I mean, road-building projects, if you dont produce
part of the money at the local level, I mean, in California, they
wont even consider it. Some counties in California and cities have
created a special tax for just that purpose.
But you haveits a sort ofyou go to the first of the line if you
are putting up money. And it seems to me that where there is
enough interest in the industry to put up private capital to support
balanced research, then we ought to prioritize those higher. And it
seems like thats here but
Dr. WOTEKI. And that is also one of the ideas behind this Foundation for Food and Agriculture research that will provide new opportunities for doing that kind of partnering, accepting funds from
external organizations to complement research programs
SUSTAINABLE AG- RES- AND EDUCATION PROGRAM

Mr. FARR. I think that is a great idea, and I hope you will follow
through with that.
Let me ask Mr. Ramaswamy about the sustainable agriculture
and research, the SARE program.
You know, I think it has a proven track record to delivering
farmer-ready research innovations to farmers in the field. And I am
pleased that you bumped it up, but it has only got about one-third
of its authorized level.
Why arent we putting more money into it?
Dr. RAMASWAMY. Thank you very much, Mr. Farr, for that question. And, indeed, you are right. The SARE program has done very

425
well in supportingor helping to develop sustainable approaches to
production agriculture.
And so, as we were developing the budget for 2014, we stayed
within the bipartisan agreement and, looking at increasing one
place, you had to come up with an offset in some other place.
And so, as you might well imagine, there are a lot of programs
that really needdesperately need very significant increases in
funding. And so we had to, you know, juggle these numbers across
all the different lines.
As you know, we have about 60 different lines that we have
within NIFA and we are trying to figure out how best to support
all of these different programs. You know, like you, were supportive of the SARE program as well.
Mr. FARR. Well, I think it goes to the former question, too. I
mean, these are all specialty crop issues, and it seems to me that
so much of our research, as you have indicated, is tilted and their
facilities and everything else have been about traditionalthe commodity programs. And wed like some parity here.
Dr. RAMASWAMY. In addition to the SARE program, of course, we
have got the Specialty Crop Research Initiative, the Organic Research and Extension Initiative, and other programs that the individuals that seek support for SARE could apply to those other programs as well. So we have seen an increase in those, including the
Agriculture and Food Research Initiative as well.
So, hopefully, you know, we are trying to meet the needs that are
out there. Obviously, as you stated in your opening statement, it
is not commensurate with the needs that are out there
Mr. FARR. I would be interested in what you just said about they
can apply to the other programs. Would you give us a list of how
many of those have been funded from the other programs?
Dr. RAMASWAMY. Yes, sir.
[The information follows:]
SUSTAINABLE AGRICULTURE RESEARCH FUNDING
National Institute of Food and Agriculture is now advancing sustainable agriculture practices as a part of many new programs that did not exist when SARE
was the primary funding source for sustainable agriculture research and extension.
Many of these programs were created and/or funded through the 2008 and 2014
Farm Bills. These include the Specialty Crop Research Initiative (SCRI), the Organic Agriculture Research and Extension Initiative, the Beginning Farmer and
Rancher Development Program (BFRDP), the Agriculture and Food Research Initiative and the Community Food Projects Competitive Grants Program.
In comparing the lists of SARE grant recipients between 2008 and 2013 with the
grant recipients from these other programs, we found that eight individuals had received funding from SARE and one of these other programs. In fact, one of the recipients was Dr. Press at University of California, Santa Cruz. In general these recipients had smaller SARE grants first which were followed later with larger grants
from the BFRDP or SCRI. The following is the list of grant recipients who received
a grant from both SARE and one of the other programs.
Leigh Adcock, Women, Food and Agriculture Network, SARE and BFRDP;
Douglas Collins, Washington State University, SARE and BFRDP;
Sally Miller, Ohio State University, SARE and SCRI;
Michael Morris, National Center for Appropriate Technology, SARE and
BFRDP;
Daniel Press, University of California, SARE and BFRDP;
Anusuya Rangarajan, Cornell University, SARE and BFRDP;
Harald Scherm, University of Georgia, SARE and SCRI; and
Glenn Teves, University of Hawaii, SARE and BFRDP.

426
Mr. FARR. I would like to share those with my growers.
Mr. ADERHOLT. Mr. Nunnelee.
ARS LEADERSHIP

Mr. NUNNELEE. Thank you, Mr. Chairman.

I presume I need to ask Dr. Jacobs-Young, unless somebody else
could better answer the questions.
The Agricultural Research Service has their five-state mid-south
headquarters in Stoneville, Mississippi. Last year, the mid-south
director, Dr. Ed King, retired. And I just need to know a timetable
on filling that vacancy.
Dr. JACOBS-YOUNG. Thank you for that question, Congressman
Nunnelee.
Yes. We definitely miss Dr. Ed King. He was a historical monument in ARS. And so we miss his leadership.
The timetablewe are looking at October 1st where we are going
to do a little bit of reshuffling of our senior executives in ARS. And
so October 1st we will have a permanentour plans are to have
a permanent senior executive in place.
Currently, we have an acting area director, Dr. Dan Upchurch,
who is alsoyou know, he is great. So he is serving in that position. And Archie Tucker, who is the number two there, has also
been there for many, many years. So it is under great leadership.
CHILDHOOD OBESITY

Mr. NUNNELEE. All right. Thank you.

One other question. Last month researchers at the Centers for
Disease Control and Prevention published an article that claimed
that prevalence of obesity among preschoolers had fallen by 43 percent in the last decade.
Since then, numerous researchers have said that the headlines
were simply too good to be true. As a statistician and economist,
I hope you can shed some light on the issue.
Dr. BOHMAN. Well, thank you, Mr. Nunnelee.
You are asking about one of these perennial research questions
on the changes in obesity, what is causing them, what are links to
government programs, such as school nutrition or the Supplemental Nutrition Assistance Program.
And the Economic Research Service has active work in this area.
We bring our strength in understanding consumer demand and
data. And we have also found some positive results in nutrition
trends.
We released a study a couple of months ago that looked at
changes in diet using data from the National Center for Health
Statistics, the National Health and Nutrition Examination Survey
(NHANES survey), over the period of the recent recession, and we
find that during that period you see an improvement in diet.
Some attributed this to people eating out less, where we do know
that data shows us that the food consumed in restaurants is of
higher fat and lower nutritional value, but, also, some evidence
that people who read nutrition labels and pay attention to dietary
advice have seen improvements in diet over this period.

427
We have also looked at research on whether SNAP participants
have better diets than nonparticipants. We see a mixed result, depending on whether you look at fats or which types of foods.
So I think it is still an open question, but we have seen some
positive results, and we see a need to continue investing in research in this area.
Mr. NUNNELEE. Thank you.
I yield back, Mr. Chairman.
Mr. ADERHOLT. Ms. Pingree.
POLLINATOR HEALTH

Ms. PINGREE. Thank you very much, Mr. Chair. Again, thank
you for all your input this morning.
I want to talk a little bit about the pollinator research in the Fiscal Year 2015 budget. I think we have all heard a lot about the
concerns in American agriculture.
Obviously, there is a huge dependence on honeybees to populate
the crops. Some estimates say we are losing 30 percent of our honeybee colonies every year. So, obviously, there is a lot of interest
in acting on this and putting in more research on it.
I signed a letter that many of my colleagues signed to the President last month, urging that his budget include increased funding
and research for the causes of colony collapse disorder, and I was
pleased to see in the Presidents proposal that the creation of the
Innovation Institutesone of them would receive up to $5 million
to focus on this.
Given that this is a $20 million impact, in a sense, on the industry, is this enough? Can you talk a little bit about what you are
likely to do, should this come through, and sort of your concerns
on this issue.
Dr. WOTEKI. Well, we have received numerous letters from Members of Congress over this past year
Ms. PINGREE. We like our honeybees.
Dr. WOTEKI [continuing]. With an emphasis on doing more on
pollinator health.
So this innovation institute is one response that we are proposing. It would be a way to partner with the private sector and,
really, to focus research on understanding what areat least a half
dozen different hypotheses about what is causing the decline in
honeybees and in pollinators, in general.
And through thatand, again, because these innovation institutes would be public-private partnerships, also focusing on getting
the solutions coming out of those insights into the hands of beekeepers and farmers and changing whatever agricultural practices
we may have to change in a way that will support pollinators and,
also, support pollination and be an economically feasible approach
for American agriculture.
We are also partnering with a number of other agencies within
USDA and with agencies external to USDA in planning those efforts and in coordinating the research that is already underway in
this very important problem area.
So we hope that, through this combined effort of continuing our
ongoing activities and then augmenting them with an innovation
institute, that that focused level of activity within a defined period

428
of time is going to provide some real insights and some products
and practices that can be adopted to help immediately.
Ms. PINGREE. Just a little follow-up on that. I mean, this is proposed funding, and you said that you are already doing some research. I think a lot of people see this as a crisis in the industry
and, obviously, having a huge impact already.
Have you made some strides? I mean, are we getting close? Are
there some practices that you are already suggesting? Because it
is hard to talk about it in the future when it is so imminent.
Dr. WOTEKI. Dr. Ramaswamy happens to be an entomologist and
for my team has been our lead person on this pollinator interagency work and activity.
So, Sonny, why dont you just
Dr. RAMASWAMY. Thank you very much, Congresswoman Pingree.
And, indeed, the U.S. Department of Agriculture is investing
quite a bit of resources in addressing honeybee health in general
and also looking at other pollinators as well.
And between the Agricultural Research Service and the National
Institute of Food and Agriculture, we are investing in the neighborhood of around about $25 million a year currently in addressing
particularly honeybee health. But as I said, you know, bumblebees
and other pollinators are being impacted as well.
And, specifically, a couple of examples about things that are
going on: We have the community of scientists that are working together, including our extension specialists and the extension educators as well that come together collaboratively to work across the
United States in multidisciplinary teams.
They have identified some of the reasons for why we have declines in the population of bees, the honeybee specifically, and
these relate to the loss of habitat. These relate to the parasites and
pathogens, such as viruses and varroa mites. These relate to the
nutritional status of honeybees.
These relate to what we call migration because we are transporting bees long distances. As you might well know, well over half
the honeybee hives are used to pollinate almonds like in the month
of February, which is when they should be resting.
So there are a lot of factors that go into this. Those have now
been identified. And in addition to identifying those, there is work
that is going on across the board, whether it is Federal scientists
or State-based scientists, coming up with ways of, you know, improving the genetics of the honeybees. There are some really excellent discoveries that have been made in that realm.
Also, for varroa mites, there have been some new ways of controlling them that includes technologies related to biotechnology
that is called interference RNA methods, and it, you know, hits the
varroa mites. There is also some biopesticides that are in the process of being registered. One of those biopesticides is from hop, you
know, the hop plant that goes into flavoring beer.
There are these hop beta acids and that is in the processagain,
based on research that the Agricultural Research Service, scientists
have undertaken, and that is in the process of being registered currently as a biopesticide.

429
So we have made a lot of progress and, unfortunately, it is almost like a moving target and we need to continue to invest our
intellectual and monetary resources to address that.
Ms. PINGREE. Thank you very much.
Mr. ADERHOLT. Mr. Fortenberry.
Dr. CLARK. Maybe I could add something to that. One of the
things that has been missing is an information base. NASS has
had a survey of beekeepers where they have been measuring honey
production.
But this surveywe have an initiative to include in this survey questions related to colony losses, pests and parasites, management practices, crops pollinated, and locations served, as well as
estimates of revenues and expenses, which will help us provide a
benchmark to know what is happening and then could be repeated
in the future to see if any of the research that is being conducted
has an impact.
Ms. PINGREE. So my time is up. But this is a survey you are proposing to do or are in the process of doing it?
Dr. CLARK. It is in the budget. We are proposing $2 million to
expand our current survey of honeybee production.
Mr. ADERHOLT. Mr. Fortenberry.
FARM WORKER WAGES

Mr. FORTENBERRY. Thanks, Mr. Chairman.

I want to return briefly to this adverse effect wage rate issue
simply to make my point in a little more conciliatory manner. Since
becoming a Member of Congress, one of my key policy concerns is
how do we ensure that we have a robust agricultural sector.
And that is a very broad spectrum and production agriculture is
at its heart and that is essential, but we have also worked on trying to figure out ways to expand the ag family. And in the farm
bill we have had all kinds of new and emerging policies to help
small beginning farmers and specialty crop farmers.
So here I stumble upon a circumstance where we are doing exactly the policy outcome and they are being affected by a strange
type of statistical problem that is being generated in a cross-jurisdictional manner between the Department of Labor and the Department of Agriculture. This is why I think I am coming across
so passionately about this.
I dont want to see them go out of business. And they cant compete based upon this higher wage rate which is being foisted upon
them, but is inconsistent with wage rates, I would suggest, all
around us where I live. We have a grouping of States here that
have disproportionately high adverse effect wage rates. It seems
very peculiar, given the other States where minimum wage and
prevailing wages are much, much higher.
That is why I am saying please get to the bottom of this quickly.
I understand the entangled explanationor I didnt fully understand the entangled explanation of how this has cross-jurisdictional
boundaries, but I am just trying to get to the bottom of how we reevaluate this quickly before these farmers give it up because they
simply cannot compete based upon what is being told to them by
the government in a policy that is inconsistent with other policies

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across the hall. So that is why I want to push this and make this
clear.
Dr. WOTEKI. We understand, sir.
CENTERS FOR AGRICULTURAL EXCELLENCE

Mr. FORTENBERRY. Thank you.

The second issue I wanted to raise briefly is we have a wonderful
community college in northeast Nebraska called Northeast Community College. They have written to you askingwith their interest
in becoming one of the Centers for Agricultural Excellence.
And I know that is in the farm billthat is authorized in the
farm bill. I would appreciate any consideration you could give
them. They have a long agricultural tradition there. I think the initial response from you was that this has not been funded previously.
But do you anticipate these centers developing in the near term?
Dr. WOTEKI. Well, I was in Omaha in January and had the opportunity, actually, to have lunch with the President of Northeast
Community College.
Mr. FORTENBERRY. Okay. I am sure he told you what I just told
you.
Dr. WOTEKI. Yes. And they have a great concept for the development of agriculture as part of the college curriculum.
At the time that we met, what I was referring to was that there
was a provision in the 2008 farm bill for Centers of Excellence. We
were unable to use that authority as it had been enacted without
an appropriation to go with it.
With the new farm bill, there is additional language that Dr.
Ramaswamy and his team
Mr. FORTENBERRY. He knows a lot about Nebraska.
Dr. WOTEKI [continuing]. Have been thinking through how they
are going to implement this new authority.
So, Sonny, you want to talk about your current thinking.
Dr. RAMASWAMY. Right. Thank you very much, Dr. Woteki.
And thank you, Congressman Fortenberry. Good to see you
again, sir.
Indeed, within the AFRI programthe Agriculture and Food Research Initiativewe have an opportunity to create these Centers
of Excellence. And so we have a team of individuals that is putting
together the approach that we are going to take.
And as you likely know, Deputy Secretary Krysta Harden is, you
know, helping us look through the Farm Bill and how do we approach these things, and we are putting together as we go forwardand I cant tell you a lot more because we are still developing it.
It could potentially offer an opportunity. I dont know. I mean,
in this particular case, I read the letter as well, and I have spoken
to a lot of other community colleges as well about, you know, the
possibility of engaging them in creating the pipeline of young people that we need tothat needs to come into the agricultural workforce, the scientific disciplines, et cetera.
And as it has been construed in the language in the Farm Bill,
it is more about offering funding for research enterprisesresearch
and education enterprises if the community college in Nebraska

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partners with the University of Nebraska in Lincoln, Iowa State,
and others as a memberas a consortium, as it were. They will be
able to participate in this as well.
By themselves, for the land that they have that they would like
to utilize in offering education and research sorts of opportunities,
in and of itself, I dont know if they will be able to be competitive.
So it might be a separate conversation with them and connecting
them with Ronnie Green and others.
Mr. FORTENBERRY. Sure. That is an absolutely fair answer because we do an extraordinarily large amount of agricultural research through the university system and we are proud of that.
And I somewhat anticipated that might be a potential outcome
here, but I did just want to raise the issue for your awareness.
Thank you very much, Mr. Chair.
Mr. ADERHOLT. As we conclude, I am going to go ahead and recognize Mr. Farr.
CALIFORNIA DROUGHT

Mr. FARR. Thank you very much, Mr. Chairman. I guess these
are last questions.
But Governor Brown of California has had an emergency declaration of the drought that exists there. He has asked Congress and
the President to declare a national disaster.
I dont think Obama has done thatPresident Obama has done
that yet. But I am sure your department must have been asked
what you might do to help mitigate the problem. That is all we are
talking about in California, is the drought.
And I wondered if you had anyand we all know the conservation and all that stuff. Is there anything innovative coming out of
the department that might be helpful?
And, particularly, agriculture gets a bad rap because of the water
they use, and we are pitting the population of California, the
urbanI mean, it is the L.A. Basin where all the people live and
where all the food they eat is consumed.
But, you know, there are constantly letters to the editor complaining about the lack of best management practices in agriculture. So time is really short. But if you have anything you are
working on, I would like to know about it.
Dr. WOTEKI. Well, one of them is a new initiative within the competitive grants program that Dr. Ramaswamy has initiated.
Dr. RAMASWAMY. Thank you very much, Mr. Farr.
Indeed, we have just releasedjust about a month ago we have
released a request for applications in the water area in the Agriculture and Food Research Initiative, and we are proposing to invest $30 million over the next 5 years. And the intent there is
very
Mr. FARR. 30 million bucks? That is nothing.
Dr. RAMASWAMY. For starters. I mean, we are hoping to continue
to make investments, and ARS and other sister agencies within
USDA are also making very significant investmentsintellectual
investments as well as monetary investments in this area.
Mr. FARR. But it seems to me what we are doing mostly in our
area is reclamation. And, frankly, the State kind of led that. Feds

432
were way behind in being able to use, you know, sewage water
treated
Dr. RAMASWAMY. Right. In addition to this particular request for
applications, we are also supporting efforts in water reuse and recycling, in genetics and plant breeding, in improving varieties that
can be drought-tolerant and salt-tolerant, et cetera.
So there are a number of programs, and we could certainly provide you a list of things that we are supporting and
Mr. FARR. Well, it might be very helpful just tomaybe in conjunction with the ag department in California and others, to pull
together kind of the state-of-the-art knowledge and stuff that we
have in all these different areas so at least people who are searching for some innovation can find out where to find it.
It would be helpful for all of us inyou know, with 54 Members
of Congress from California who are all asking this question, and
it would beI think it might be helpful.
And there is nothingwithout more rain, there is nonobody
wins. You cant build anything fast enough to meet this year. But
we certainly will beI think we are going to get through it just by
squeezing every drop out of the system.
Dr. JACOBS-YOUNG. So, Congressman Farr, currently ARS invests a little over $30 million a year in drought research. And so
we aresimilar to what Dr. Ramaswamy talked about, we are
looking at optimized irrigation systems. How do we get more crop
per drop? is what the National Program Leader (NAL) told me
about.
We are looking at using nontraditional water sources, looking at
salinity-tolerant crops and then, most importantly, building predictive systems.
We have a system that is called the evaporative stress index,
which is able to predict drought and, so, giving producers an opportunity to make decisions ahead of the drought actually occurring.
And so that system is currently able to produce predictions a couple of weeks ahead of our traditional systems that we currently
have in place. And so we are working on more predictive systems
for
Mr. FARR. I dont know if that is as effective as just getting this
total use of water. I mean, it has got to be used over and over
again. We dont use it enough.
And I think California therein is the answer, is that we are going
to develop some more productions out of saltwater. We are going
to probably do a lot more inground storage on drawing water off
the rivers in peak flow.
We are probably going to build some more off-stream reservoirs,
not on-stream. We are not for dams. And I think we can build the
infrastructure that can be consistent in low-rain years.
But I think it is that technology in drip irrigation, reclamation,
all of that kind of micro stuff, that is really going to be almost
mandatory in the industry.
And I think that is where you could really be helpful, showing
us the science that you know about how little you can get by on.
Dr. RAMASWAMY. Indeed. And there is a lot of wonderful work
that is going on in California, ARS labs as well as the University
of California (UC) system as well. And we will get you a

433
Mr. FARR. A list.
Dr. RAMASWAMY [continuing]. A composite list of it.
[The information follows:]

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FARM AND RANCH IRRIGATION SURVEY

Dr. CLARK. Could I just add that the National Agricultural Statistics Service, as part of the Census of Agriculture, conducts the
Farm and Ranch Irrigation Survey, and we just will complete that
data and release it in October of this year, covering the previous
year.
This survey is done every 5 years. So we will give you at least
the information on what practices are and the changes that have
happened between 2013 and the past 5 years.
Mr. FARR. That would only be helpful for us if it was done on
California almost by county because it is notyou know, who cares
what the national standard is? We only care about our own backyard.
Dr. CLARK. I know we have State data. I dont know if it is at
the county level. But it is a survey.
[The information follows:]
FARM

AND

RANCH IRRIGATION SURVEY

NATIONAL AGRICULTURAL STATISTICS SERVICE (NASS)

NASS estimates it will release the results of the Farm and Ranch Irrigation Survey in November 2014. These results are based on regions or States that have a
large enough sample. California is included among those States with a large enough
sample to publish by States, but not by county.
FOUNDATION FOR FOOD AND AGRICULTURAL RESEARCH

Mr. ADERHOLT. Thank you.

Well, as we conclude today, thank you for being here.
Let me just ask Dr. Woteki one last thing. You note in your testimony about the 2014 farm bill created the Foundation for Food and
Agricultural Research, provided $200 million in mandatory funding
for it, USDA is directed to stand up the foundation.
What is your time frame, expecting that to be operating?
Dr. WOTEKI. Well, we expect the Foundation to be up and operating in mid-summer. The Secretary did a listening session about
the farm bill implementation a few weeks ago and, at that point,
indicated that was our time line.
Mr. ADERHOLT. Okay. Thank you.
All right. Well, again, thank you each for being here this morning and for your testimony. We look forward to working with you
as we progress with the fiscal year 2015 budget. Thank you.

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WITNESSES
Page

Bice, Dr. D. K ...........................................................................................................

Bohman, Dr. Mary ...................................................................................................
Clark, Dr. Cynthia ...................................................................................................
Ellis, Karen ..............................................................................................................
Fong, Phyllis ............................................................................................................
Harden, Gil ...............................................................................................................
Jacobs-Young, Dr. Chavonda ..................................................................................
Ramaswamy, Dr. Sonny ..........................................................................................
Wetjen, Mark ...........................................................................................................
Woteki, Dr. C. E .......................................................................................................

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